Question

The economic cost at Nicole's factory is:

• A. Rs. 75000
• B. Rs. 70000
• C. Rs. 80000
• D. Rs. 3000

Answer 1

Answer: (B)

Rs. 70000

Here in this question, we are asked to find the economic cost i.e. the cost that includes explicit and implicit costs. Thus we would take opportunity costs also into consideration.

CALCULATION OF ECONOMIC COST:

Particulars Amt.

Cost of Raw- materials 20000

Interest cost on borrowings 5000

$(50000\times \frac{10}{100})$

Opportunity Cost of the owner's fund 5000

$(50000\times \frac{10}{100})$

The opportunity cost of entrepreneurship 40000

or salary foregone

Therefore, the cost will be Rs. 70000.

The correct option is B.