An individual pays $100 every month as rent for an apartment,and his monthly opportunity cost of commuting from the apartment to his place of work is $40.Which of the following statements is then true?
A) The direct cost of renting the apartment is $140
B) The indirect cost of renting the apartment is $140
C) The direct cost of renting the apartment is $40, whereas the indirect cost of renting the apartment is $100
D) The direct cost of renting the apartment is $100, whereas the indirect cost of renting the apartment is $40

Question

Quizplus · Accepted Answer

The direct cost refers to the actual expense paid out of pocket, which in this case is the rent of $100 per month. The indirect cost refers to the opportunity cost, which is the cost of the next best alternative forgone, in this case, the cost of commuting to work ($40). Therefore, the direct cost of renting the apartment is $100, whereas the indirect cost is $40.

An Individual Pays $100 Every Month as Rent for an Apartment,and