Economists consider which of the following costs to be irrelevant to a short run business decision?
A)out of pocket
B)historical cost
C)opportunity cost
D)replacement cost
replacement cost
REPLACEMENT
To determine which of the costs is considered irrelevant to a short-run business decision, let's break down each cost and see how it relates to decision-making in the short run.
A) Out of pocket cost: This refers to the actual cash expenses incurred by a business in the short run, such as wages, rent, and purchasing raw materials.
B) Historical cost: This refers to the original cost of acquiring an asset or producing a good, which includes the actual amount paid at the time of acquisition.
C) Opportunity cost: This refers to the value of the next best alternative foregone when making a decision. It is the cost of choosing one option over another.
D) Replacement cost: This refers to the cost of replacing an asset at the present market price if it were to be damaged or lost.
Now, in the context of a short-run business decision, economists typically consider out of pocket costs, historical costs, and replacement costs as relevant. These costs directly affect a firm's current cash flow and are important in evaluating the profitability and viability of a decision.
However, economists generally consider opportunity costs as irrelevant to short-run business decisions. This is because opportunity costs are forward-looking and involve weighing the benefits and drawbacks of alternative choices. Short-run decisions are usually focused on immediate actions, with less consideration given to long-term implications.
Therefore, the correct answer is C) opportunity cost. Economists consider opportunity costs to be irrelevant to short-run business decisions.