Economists Consider Both Explicit and Implicit Costs When Measuring Economic

question 96

Multiple Choice

Economists consider both explicit and implicit costs when measuring economic profit.The reason they consider implicit costs is that:

• A) they are more conservative than accountants, who consider only costs that are out-of-pocket.
• B) most businesses forget to pay their implicit costs.
• C) a business must cover its opportunity costs as well as its out-of-pocket expenses to be truly profitable.
• D) implicit costs are typically far larger than explicit costs.
• E) implicit costs include expenses like taxes and fees to the government.

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Definitions:

Nonsystematic Variance

The portion of an asset's total variance that is attributable to factors unique to that specific asset, as opposed to broader market influences.

Market Index

A metric that measures the performance of a basket of securities intended to represent a particular market or segment of it, like the S&P 500 or NASDAQ.

Treynor-Black Model

A portfolio optimization model that integrates market equilibrium theory with security selection to enhance portfolio performance.

Nonsystematic Risk

The risk associated with an individual asset or company, which can be reduced through diversification, unlike systematic risk.