Question

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company payment for rental equipment?

1) Opportunity cost of using the equipment for other purposes
2) Depreciation of the equipment
3) Maintenance and repair costs for the equipment
4) Insurance costs for the equipment

Answer 1

The opportunity cost of using the equipment for other purposes constitutes an implicit cost to the Johnston Manufacturing Company's payment for rental equipment.

Step-by-step explanation:

An implicit cost represents the opportunity cost of using resources that a company already owns. In the case of the Johnston Manufacturing Company's payment for rental equipment, the opportunity cost of using the equipment for other purposes would constitute an implicit cost. This means that by renting the equipment, the company forgoes the opportunity to use it for other potential uses. The other options (2, 3, and 4) are typically explicit costs involving actual monetary payments.