Interest is considered a(n)
A) explicit cost when the firm pays a bank to borrow money.
B) implicit cost when the firm owner uses his or her own funds to buy capital.
C) return to entrepreneurship if the firm owner uses her own funds to buy capital.
D) form of depreciation if the cost of borrowing increases.
E) Both answers A and B are true.

Question

Quizplus · Accepted Answer

Interest is considered an explicit cost when a firm borrows money from a bank and incurs interest expenses. It is an implicit cost when the firm owner uses personal funds to finance the business, foregoing the interest that could have been earned if those funds were invested elsewhere.

Interest Is Considered A(n)