The market price of a service is ₹720 and net indirect tax is ₹55. What is its factor cost?
Answer and explanation
Correct answer: ₹665
The governing conversion formula is Factor Cost = Market Price − Net Indirect Taxes, because market price includes the net effect of indirect taxes over factor payments. Substituting the values gives ₹720 − ₹55 = ₹665. Hence option B is correct. ₹720 is the given market price, while ₹775 results from adding the tax instead of subtracting it; ₹610 uses an incorrect deduction.
Frequently asked questions
What is the correct answer to this question?
₹665
Why is this the correct answer?
The governing conversion formula is Factor Cost = Market Price − Net Indirect Taxes, because market price includes the net effect of indirect taxes over factor payments. Substituting the values gives ₹720 − ₹55 = ₹665. Hence option B is correct. ₹720 is the given market price, while ₹775 results from adding the tax instead of subtracting it; ₹610 uses an incorrect deduction.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: Aggregates related to national income - Market price and factor cost.
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