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CA Foundation · Business Economics · Nature and Scope of Business Economics

Ananya Textiles in Surat is deciding whether to use its own warehouse, which could otherwise be rented out for ₹40,000 per month, to store raw material. The firm will also pay ₹15,000 per month in cash for electricity and labour at the warehouse. What is the monthly economic cost of using the warehouse for this purpose?

The monthly economic cost is ₹55,000. It is the sum of the ₹15,000 cash expenses and the ₹40,000 rent forgone by not letting out the warehouse, because opportunity cost must be included along with explicit costs in business decisions.

  1. A₹15,000
  2. B₹40,000
  3. C₹55,000Correct
  4. D₹25,000

Explanation

Economic cost = explicit cost + implicit (opportunity) cost = ₹15,000 + ₹40,000 = ₹55,000. Option A counts only the cash outlay and ignores the forgone rent. Option B ignores the explicit expenses. Option D wrongly subtracts the two figures.

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