Charlotte lives in a house but also owns an apartment unit she has rented out for four years to help finance her son Ty's college tuition. After Ty graduated and moved back home, Charlotte did not renew the rental contract and instead allowed Ty to move into the unit rent-free while he searches for a job. For Charlotte, Ty moving into the former rental unit is a(n) _____ cost.

Question

Quizplus · Accepted Answer

The cost to Charlotte for letting Ty live in the apartment rent-free is an implicit cost. This is because she is foregoing the potential rental income she could earn from renting the unit out to someone else. Implicit costs are those that involve a sacrifice of potential income or benefits.

Charlotte Lives in a House but Also Owns an Apartment