Cost

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  • Q1

    Rising part (positively sloped) of long run average cost curve is due to which of the following:

    Marks:1
    Answer:

    Diseconomies of scale

    Explanation:

    When the scale of production is increased beyond the optimum leve. The firm starts facing some disadvantages of internal diseconomies because of which cost of production increases.

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  • Q2

    Alex found INR 50 while playing. With this INR50 he can either buy an ice cream or a packet of chips. If he chooses to buy his favourite packet of chips. Here, what will the cost of not buying an ice cream is known as:

    Marks:1
    Answer:

    Opportunity Cost

    Explanation:

    Opportunity cost is the value of sacrifice made in accepting an alternative course of action. It arises only when alternatives are available.

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  • Q3

    Suppose the total cost of production of a commodity A is INR 1,75,000 out of which implicit cost is INR 15,000 and normal profit is INR 75,000. Then in this case explicit cost will be:

    Marks:1
    Answer:

    INR 85,000

    Explanation:

    Economic cost or the total cost cost is the sum of explicit cost and implicit cost including the normal profits.

    Economic Costs= Explicit Costs + (Implicit Costs + Normal profits)

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  • Q4

    __________ costs is included and recorded in the books of accounts.

    Marks:1
    Answer:

    Explicit

    Explanation:

    Explicit costs are the money payments made by the firm to the owners of various factors of production for their services like rent, wages & salaries etc. They are also known as out of pocket costs.

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  • Q5

    The expenditure incurred on the factors of production supplied by an entrepreneur himself comes under:

    Marks:1
    Answer:

    Implicit Cost

    Explanation:

    Implicit cost is the estimated value of inputs owned by the firm and used in the production process. It is also known as cost of self owned inputs. For example salary of own labour, rent of owner occupied building etc.

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