Question

Implicit costs are:

1) the opportunity costs of using resources owned by the entrepreneur in his/her own business.
2) payments the business owner must make on borrowed funds.
3) costs which vary as the level of output varies.
4) those payments the business owner makes in cash.
5) the payments the business owner makes for public relations, such as donations to charity.

Answer 1

Implicit costs are the opportunity costs of using the resources owned by an entrepreneur in his/her own business. They are not direct out-of-pocket expenses but reflect the foregone opportunities such as lost leisure time or potential earnings from an asset.

Step-by-step explanation:

Implicit costs are opportunity costs associated with a business's use of resources that it already owns. These are not out-of-pocket expenses, unlike explicit costs, but are critical in assessing the economic profitability of a company. Implicit costs may include the personal time a business owner invests into the business instead of pursuing other income-generating opportunities, the usage of property they own for business purposes without earning rental income, and other non-cash expenses such as depreciation of goods, materials, and equipment necessary for the business to operate. An example of an implicit cost is if someone like Fred values his leisure time but starts his own firm and has to put in more hours than he would at a corporate firm; the value of lost leisure time is considered an implicit cost.