Question

Which of the following is termed as economic cost?

• A. Production cost
• B. Fixed cost
• C. Monetary cost
• D. Economic cost

Hint:

Economic cost includes both the explicit cost (monetary cost) and the implicit cost (opportunity cost).

Answer 1

The Correct Option is D

Step 1: Understanding economic cost.
Economic cost includes both explicit costs (monetary outlay) and implicit costs (opportunity cost). It is the total cost of using resources, considering both the actual outlay of money and the cost of forgoing the next best alternative.

Step 2: Analyzing the options.
(A) Production cost: This is not the same as economic cost. Production cost refers to the costs directly incurred in producing goods or services, but it does not include opportunity costs.
(B) Fixed cost: Fixed costs are costs that do not change with the level of output, but they do not include opportunity costs, which are part of economic cost.
(C) Monetary cost: This refers to the actual money spent but does not include the opportunity cost, so it is not the full economic cost.
(D) Economic cost: Correct. Economic cost includes both explicit and implicit costs, covering both the actual money spent and the opportunity costs.

Step 3: Conclusion.
The correct answer is (D) Economic cost, as it incorporates both the monetary outlay and the opportunity cost.