Suppose Joe Rich owns his own company and does not pay himself a salary. This means the salary he could have earned in alternative employment is considered an implicit cost for the firm.

Question

Quizplus · Accepted Answer

Implicit costs refer to the opportunity cost, such as the salary or income a person could have earned in alternative employment but chose not to pursue in order to run their own business. Therefore, if Joe Rich owns his own company and does not pay himself a salary, the salary he could have earned in alternative employment is an implicit cost for the firm.

Suppose Joe Rich Owns His Own Company and Does Not