Home › CA Foundation › Business Economics › Theory of Cost › When prices are rising, the money outlay require…
When prices are rising, the money outlay required today to buy a new machine identical to an old one will exceed the amount originally paid for the old machine. The cost of buying the new identical asset today is called:
AHistorical cost
BImplicit cost
COpportunity cost
DReplacement cost
Answer & Solution
Correct answer: D. Replacement cost
1. Historical cost is what was actually paid in the past to acquire the asset.
2. Replacement cost is the money expenditure needed now to replace that asset.
3. Rising prices make replacement cost higher than historical cost, which matches the cost of buying it today.
4. Opportunity cost (C) and implicit cost (B) concern foregone alternatives, not the current purchase outlay. Hence replacement cost.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.2_
Related questions
A firm's average variable cost falls as output rises from zero toward normal capacity but In the short run, as the output of a firm steadily increases, its average fixed cost (AFC)Which one of the following is an example of an implicit cost?Which one of the following is an example of an explicit cost?Which of the following statements about the relationship between marginal cost (MC) and avWith which one of the following costs is the concept of marginal cost most closely relatedEmpirical studies of modern firms suggest the long-run average cost curve is often 'L-shapThe 'U' shape of the long-run average cost curve, unlike that of the short-run average cos