A firm pays its accountant an annual fee of $10,000. Is this an economic cost?

Md Ariful Islam

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Solution

It is an economic cost;

Economic cost is the total sum of the implicit cost and explicit cost. Explicit cost refers to the cost of resources and services acquired from a third party and implicit cost is is the opportunity cost equal to what a firm must give up in order to use a factor of production for which it already owns. Therefore a firm paying the accountant is an explicit cost of purchasing the accountant's services because the accountant trades their time in return for money making it an economic cost.

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