Multiple choice

Which of the following is an example of an explicit cost?

  1. The wages a proprietor could have made by working as an employee of a large firm.

  2. The income that could have been earned in alternative uses by the resources owned by the firm.

  3. The payment of wages by the firm.

  4. The normal profit earned by a firm.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Explicit costs are actual monetary payments made by the firm. Option C (wage payments) is a clear explicit cost - the firm pays money to workers. Options A and B describe implicit/opportunity costs - what the firm could earn but doesn't actually pay. Option D (normal profit) is an implicit cost representing the minimum return needed to keep the entrepreneur in the business, not an actual payment.

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