Asked by Falantina Rashoo on Jun 01, 2024
Verified
Why should firms incorporate opportunity costs into their calculation of economic costs?
Opportunity Costs
The price paid when one skips the second-best option available in making a choice.
Economic Costs
The total costs of undertaking an economic activity, including both explicit costs and opportunity costs.
- Distinguish among explicit costs, implicit costs, and emphasize the significance of incorporating both in calculations of economic costs.
Verified Answer
AO
Adaku OnwukaJun 05, 2024
Final Answer :
All resources have an opportunity cost. This is true for both the resources that a firm purchases from outsiders and the resources that it already owns. The true measure of success is doing as well as you possibly can by making more money in your business than you could pursuing any other business venture. To determine whether you are achieving that goal, you must take into account all of your opportunity costs, which are your implicit costs as well as your explicit costs.
Learning Objectives
- Distinguish among explicit costs, implicit costs, and emphasize the significance of incorporating both in calculations of economic costs.