Costs that do not involve actual payment by a firm to factors of production but which nevertheless represent costs to the firm in the sense that in order to use certain inputs in the production process the firm has to abandon opportunities to use them elsewhere are:
A) explicit costs
B) opportunity costs
C) fixed costs
D) historical costs
E) variable costs

Question

Quizplus · Accepted Answer

Opportunity costs represent the cost of the next best alternative foregone, which is relevant in decision making. They do not involve actual payment but still represent a cost to the firm as the firm has to give up the opportunity to use those inputs elsewhere. Explicit costs, on the other hand, involve actual payment by the firm to factors of production. Fixed costs are costs that do not vary with the level of output, historical costs are past costs that have already been incurred, and variable costs are costs that vary with the level of output.

Costs That Do Not Involve Actual Payment by a Firm