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Economic cost includes
- a)implicit cost only
- b)explicit cost only
- c)neither implicit nor explicit cost
- d)both implicit as well as explicit cost
Correct answer is option 'D'. Can you explain this answer?
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Economic cost includesa)implicit cost onlyb)explicit cost onlyc)neithe...
Understanding Economic Cost
Economic cost is a comprehensive measure that includes both implicit and explicit costs. Let’s break down these concepts for clarity.
Explicit Costs
- These are direct, out-of-pocket payments that a business makes in its operations.
- Examples include wages, rent, utilities, and materials.
- Explicit costs are easily identifiable and measurable.
Implicit Costs
- These represent the opportunity costs of utilizing resources in a particular way rather than in their next best alternative use.
- They are not directly paid out but reflect what is foregone, such as the income the owner could have earned elsewhere.
- Examples include the salary of the business owner who could have worked at another job or the return on investment from capital that is tied up in the business.
Importance of Both Costs
- By considering both implicit and explicit costs, businesses can gauge the true economic profitability of their operations.
- Economic cost provides a more holistic view of financial performance, allowing for better decision-making regarding resource allocation.
Conclusion
In summary, economic cost encompasses both implicit and explicit costs, making option 'D' the correct answer. This comprehensive approach helps businesses understand the full implications of their decisions and operations, ensuring informed strategic planning.
Economic cost is a comprehensive measure that includes both implicit and explicit costs. Let’s break down these concepts for clarity.
Explicit Costs
- These are direct, out-of-pocket payments that a business makes in its operations.
- Examples include wages, rent, utilities, and materials.
- Explicit costs are easily identifiable and measurable.
Implicit Costs
- These represent the opportunity costs of utilizing resources in a particular way rather than in their next best alternative use.
- They are not directly paid out but reflect what is foregone, such as the income the owner could have earned elsewhere.
- Examples include the salary of the business owner who could have worked at another job or the return on investment from capital that is tied up in the business.
Importance of Both Costs
- By considering both implicit and explicit costs, businesses can gauge the true economic profitability of their operations.
- Economic cost provides a more holistic view of financial performance, allowing for better decision-making regarding resource allocation.
Conclusion
In summary, economic cost encompasses both implicit and explicit costs, making option 'D' the correct answer. This comprehensive approach helps businesses understand the full implications of their decisions and operations, ensuring informed strategic planning.
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Economic cost includesa)implicit cost onlyb)explicit cost onlyc)neither implicit nor explicit costd)both implicit as well as explicit costCorrect answer is option 'D'. Can you explain this answer?
Question Description
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