Question

The cost which is never zero even when production is stopped is known as

• A. Supplementary cost
• B. Prime cost
• C. Explicit cost
• D. Implicit cost

Hint:

Prime costs are directly associated with the production process and remain even when the production is halted, unlike fixed costs.

Answer 1

The Correct Option is B

Step 1: Understanding Fixed and Variable Costs:
In economics, costs are classified into fixed and variable costs. Fixed costs are incurred even when no production occurs, while variable costs change with production.
Step 2: Analyzing the Cost Types:
- Supplementary cost: This refers to additional costs that arise during production but does not specifically describe a cost that remains even when production stops.
- Prime cost: This is the sum of direct costs, including direct labor and direct materials, which remains incurred even when production is halted, as they are tied to the firm’s basic production activities.
- Explicit cost: This refers to actual out-of-pocket costs but does not fit the description of costs that remain when production stops.
- Implicit cost: This refers to the opportunity costs of using resources in the current production activity. These costs do not directly apply when production is halted.
Step 3: Conclusion:
Prime costs are the direct costs incurred in production, which do not disappear even when production is stopped. Hence, the correct answer is option (B).