The implicit rental rate to a firm of owning a building is
A)the sum of economic depreciation and foregone interest.
B)economic depreciation only.
C)foregone interest only.
D)the cost of using an alternative building.
E)the rent paid on the building.

Question

Quizplus · Accepted Answer

The implicit rental rate represents the opportunity cost of using the building instead of renting it out. It is the combination of economic depreciation, which reflects the decline in the value of the building over time, and foregone interest, which represents the return the firm could have earned by investing the capital used to purchase the building elsewhere. Therefore, choice A is the best answer.

The Implicit Rental Rate to a Firm of Owning a Building