Which Statement Illustrates the Concept of External Cost

question 143

Multiple Choice

Which statement illustrates the concept of external cost?

• A) Margaret purchases all her food and clothing in the big city outside her residence.
• B) A small business owner frequently buys raw materials by using her bank's line of credit.
• C) Raymond cannot open his windows at times because he lives downwind from a mushroom farm.
• D) Felicia, an economics major, asks the most insightful questions in class.

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Definitions:

Sunk Cost

A cost that has already been incurred and cannot be recovered or changed.

Period Cost

Expenses on the income statement that are not directly tied to the production of goods, including sales, administration, and other overhead costs.

Opportunity Cost

The cost of foregone alternatives, representing the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.

Conversion Costs

Expenses incurred in the process of converting raw materials into finished goods, including labor and manufacturing overhead.