Question

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

1) Opportunity cost
2) Explicit cost
3) Sunk cost
4) Fixed cost

Answer 1

The implicit cost to the Johnston Manufacturing Company is the opportunity cost which includes the non-monetary costs of using resources the company already owns like the owner's time and the depreciation of goods and equipment.

Step-by-step explanation:

The implicit cost to the Johnston Manufacturing Company is the opportunity cost. Unlike explicit costs, which represent actual cash payments, such as wages and rent, implicit costs include non-monetary opportunity costs of using resources the company already owns. This could be the owner's time spent working in the business instead of earning a salary elsewhere or the foregone rent from using property owned as a store location. Implicit costs also cover the depreciation of goods and equipment necessary for the company's operations. Therefore, when comparing the options provided, option 1) Opportunity cost is indeed considered an implicit cost for the Johnston Manufacturing Company.