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Questions and Answers
What does the economist take into consideration when measuring cost?
What does the economist take into consideration when measuring cost?
- Opportunity cost and monetary cost (correct)
- Monetary cost and labor cost
- Overheads and alternative courses of action
- Real cost and forgone alternatives
How does an accountant usually measure cost?
How does an accountant usually measure cost?
- In terms of forgone alternatives
- In monetary terms (correct)
- In real cost
- In terms of opportunity cost
What does the opportunity cost represent?
What does the opportunity cost represent?
- The monetary cost of a decision
- The next best alternative that must be forgone (correct)
- The sacrifice of taking an alternative course of action
- The real cost of alternatives
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Study Notes
Measuring Cost
- Economist considers the opportunity cost, which is the value of the next best alternative given up when choosing to use a resource in a particular way.
- Economist also considers the social cost, which includes the direct cost of production and the external costs borne by third parties.
- Additionally, economist considers the long-run costs, which are the costs associated with the production of goods and services over a long period of time.
Accounting Perspective
- Accountant typically measures cost using historical cost, which is the original cost of acquiring or producing an asset or resource.
- Accountant focuses on the direct cost of production, which includes the cost of labor, materials, and other resources directly involved in production.
- Accountant also considers the explicit cost, which is the out-of-pocket cost of production.
Opportunity Cost
- Opportunity cost represents the value of the next best alternative that is given up when choosing to use a resource in a particular way.
- Opportunity cost is not necessarily a monetary cost, but rather the value of the benefit that could have been obtained if the resource were used in an alternative way.
- Opportunity cost is a key concept in economics, as it helps decision-makers evaluate the trade-offs involved in making choices.
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