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Which one of the following is an example of an explicit cost?
AThe wage the proprietor could earn elsewhere
BThe income the firm's own resources could earn
CThe wages actually paid by the firm to workers
DThe normal profit the entrepreneur expects
Answer & Solution
Correct answer: C. The wages actually paid by the firm to workers
1. Explicit costs are actual cash payments the firm makes to outside suppliers of factors.
2. Wages paid to workers involve a real cash outflow, so they are explicit costs.
3. Hence option C is the explicit cost.
4. The proprietor's foregone wage (A), foregone income on own resources (B) and normal profit (D) are all imputed implicit costs, involving no cash payment. Hence wages actually paid.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.0–1_
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