Question

One fundamental problem that arises in the empirical estimation of cost functions from available data from the past is that opportunity costs must be extracted from the available accounting cost data.

Select one:

True

False

Answer 1

Ans: True

Explanation:

Opportunity cost refers to the cost of an input in its nest best alternative use. The problem that arises in the empirical estimation of cost functions from available data from the past is that opportunity costs must be extracted from the available accounting cost data. It means each input used in production process must be valued at its opportunity cost, i.e., what the input can earn in its best alternative use rather than the actual expenditure. It is difficult to obtain the oppottunity cost data available from accounting data.

Thus, the statement is true.