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Question) Which of the following would be considered an external cost? a) Rent for factory premises...

Question)
Which of the following would be considered an external cost?

a) Rent for factory premises

b) The cost of direct materials

c) Direct labour cost

d) Community degradation from an organisation’s operations

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Answer #1

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Definition of external cost for better understanding of the concept

An external cost occurs when producing or consuming a good or service imposes a cost (negative effect) upon a third party.

Therefore community degradation from an organisation's operation is considered as external cost.

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