Question

Economic cost refers to the sum total of both explicit cost and implicit cost ______.

Options

• including excess profit

• including normal profit

• including net profit

• including abnormal profit

Answer 1

Economic cost refers to the sum total of both explicit cost and implicit cost including normal profit.

Explanation:

Economic Cost = Explicit Cost + Implicit Cost 

• Explicit cost refers to actual out-of-pocket expenses (for example, salary and rent).
• Implicit cost refers to the opportunity cost of using owned resources (such as the owner's time and capital).
• Normal profit is considered part of the implicit cost and hence included in the economic cost.