What does the concept of economic cost include?

Economic cost encompasses both explicit costs and implicit opportunity costs, which makes the choice that includes both of these components the correct one.

Explicit costs are the direct, out-of-pocket expenses incurred in the production of goods or services, such as wages, rent, and materials. These are easily identifiable and measurable in monetary terms. On the other hand, implicit costs represent the opportunity costs of using resources in a particular way. This includes the income that could have been earned if resources were employed in their next best alternative use.

By considering both explicit and implicit costs, economic cost provides a more comprehensive view of the total costs associated with a decision or activity. This holistic approach helps in assessing the true profitability and viability of economic decisions, as it reflects not just the direct financial expenses, but also the potential benefits foregone from alternative uses of resources.

In contrast, other options fail to capture this full scope of costs. For instance, limiting the definition to only explicit costs overlooks crucial factors that impact decision-making. Marginal costs represent the additional costs incurred when producing one more unit of a good or service but do not encompass the total cost consideration. Lastly, restricting the concept to short-term production costs ignores long-term implications and opportunities, missing the broader economic perspective