Multiple Choice
The opportunity cost of attending university is likely to include all except which of the following?
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0. Basic Principles of Economics
Positive and Normative Analysis
Multiple Choice
Which of the following best explains the concept of explicit costs?
A
Explicit costs refer to the opportunity costs of using resources owned by the firm.
B
Explicit costs are the total revenue minus total cost.
C
Explicit costs are the benefits received from consuming a good or service.
D
Explicit costs are direct, out-of-pocket payments for resources used in production, such as wages and rent.
Verified step by step guidance1
Step 1: Understand the definition of explicit costs in microeconomics. Explicit costs are the direct, out-of-pocket payments a firm makes to purchase or hire resources used in production.
Step 2: Recognize that explicit costs include payments such as wages, rent, materials, and utilities—these are actual monetary transactions recorded in accounting.
Step 3: Differentiate explicit costs from implicit costs, which represent the opportunity costs of using resources owned by the firm without direct payment.
Step 4: Note that explicit costs are not the same as total revenue minus total cost, which relates to profit calculations, nor are they benefits received from consumption.
Step 5: Conclude that the best explanation of explicit costs is that they are direct, out-of-pocket payments for resources used in production, such as wages and rent.
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