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The interest an entrepreneur could have earned by investing his own capital elsewhere, plus the salary he could have drawn working for another firm, are excluded from accounting cost. These foregone returns on self-owned factors are termed:
AExplicit costs
BOutlay costs
CImplicit costs
DSunk costs
Answer & Solution
Correct answer: C. Implicit costs
1. The cost of factors the entrepreneur owns himself and uses in his own business is called implicit cost.
2. Foregone interest on own capital and foregone salary on own labour are exactly such imputed returns.
3. They involve no cash payment, so they are not explicit (A) or outlay (B) costs.
4. Sunk costs (D) are past unrecoverable expenditures, a different concept. Hence implicit costs.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.1_
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