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CA Foundation · Business Economics · Theory of Production and Cost

Which of the following is an example of an implicit cost for a firm owned by Meera, who runs her own garment unit in her own building?

The foregone rent on Meera's own building is an implicit cost. Implicit costs are opportunity costs of self-owned resources with no actual cash payment, whereas wages, electricity and cloth purchases are explicit costs paid to outsiders.

  1. AWages paid to tailors
  2. BRent that Meera could have earned if she had leased the building to someone elseCorrect
  3. CElectricity bill paid for the unit
  4. DCost of cloth purchased from suppliers

Explanation

Implicit costs are opportunity costs of resources owned by the firm itself, for which no cash payment is made. The foregone rent on Meera's own building is such a cost. Wages, electricity and cloth are explicit costs because they involve actual payments to outsiders.

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