Answer (D) is correct . Economic cost is defined as the sum of all costs, both implicit and explicit, of a firm. Explicit costs include direct expenditures made to those outside the firm, for example, the costs of labor, materials, and equipment. Implicit costs are the payments that would have been received if self-owned resources had been used outside the firm’s business. Thus, the lease payments forgone by not renting the firm’s building to others is an implicit cost. The return necessary to keep resources employed in a given enterprise (normal profit) is also an implicit cost.
Answer (A) is incorrect because Economic cost includes not only explicit costs (dollars paid), but implicit costs as well; implicit costs include opportunity costs.
Answer (B) is incorrect because Opportunity costs and dollar costs should be added, not subtracted.
Answer (C) is incorrect because All explicit and implicit costs should be added, not subtracted.
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