Chapter 70, Problem 1MCQ

To determine

The implicit cost of capital which is owned.

Answer to Problem 1MCQ

From the available options, the correct option is the rental rate.

Explanation of Solution

Owning the capital does not mean that there is no cost of capital because it requires investments and funds which shows that option e is incorrect. The original purchase price of capital is the original cost of the business which is incurred at the time of purchasing which means it cannot come under the implicit cost. Therefore, options c and d are not correct.

As the implicit cost shows the opportunity cost that is incurred by using resources for the production or to complete the project which means from the available options, the rental rate is correct because this would be the implicit cost of capital that someone owns to accomplish goals. Therefore the correct option is a (the rental rate).

Economics Concept Introduction

Introduction: The cost which is already incurred but is not visible as a separate expense on the report is called implicit cost such as the investment of time for the training.