The Opportunity Cost of Production Differs from an Accounting Definition

question 40

Multiple Choice

The opportunity cost of production differs from an accounting definition of a firm's costs because it includes

• A) expenditures the firm undertakes for research and development.
• B) the opportunity cost of assets and financial resources owned by the firm.
• C) the direct monetary cost of purchasing resources.
• D) the firm's revenue as a cost.

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Definitions:

Unique Risk

Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also called firm-specific risk, nonsystematic risk, or diversifiable risk.

Diversification

Diversification is an investment strategy that aims to reduce risk by allocating investments among various financial instruments, industries, geographic locations, or other categories.

Portfolio

A collection of investments, such as stocks, bonds, commodities, and real estate, held by an individual or an institution.

Index Model

A statistical model to estimate the returns of a stock based on the returns of a broader market index.