Economic cost can best be defined as:

• A. the total amount of money spent on raw materials
• B. the sum of explicit and implicit costs incurred in producing a good or service
• C. the revenue generated from selling goods and services
• D. the profit earned after deducting taxes

Answer: (B)

Verified step by step guidance

1. Understand that economic cost includes all costs associated with production, not just the money spent directly.
2. Recognize that explicit costs are the direct, out-of-pocket payments for inputs like raw materials, labor, and rent.
3. Identify implicit costs as the opportunity costs of using resources owned by the firm, such as the owner's time or capital.
4. Combine explicit and implicit costs to calculate the total economic cost, which reflects the true cost of production.
5. Conclude that economic cost is the sum of explicit and implicit costs incurred in producing a good or service.