Question

Differentiate between real cost and money cost with the help of examples.

Answer 1

When production cost is expressed in terms of monetary units, it is called money cost. It means the aggregate money expenditure incurred by a producer on the purchase, procurement and processing of inputs.

Real cost refers to the payments made to the factors of production to compensate for disutility’s of rendering their services. It is computed in terms of the toil, trouble, pain and discomfort involved for labour, when it is engaged in production.