Question 28 Solution: Market Price = 12,500 (includes indirect taxes), Indirect Taxes = 1,800, Subsidies = 600, Factor Cost = Market Price - Indirect Taxes + Subsidies = 11,300. Therefore, the correct answer is: D. Indirect taxes and subsidies don't reflect factor costs.

✅ Correct.

The calculation for Factor Cost is accurate. To convert from market prices to factor costs, you subtract indirect taxes (which are included in market prices but not part of the cost of factors of production) and add subsidies (which reduce market prices but are a form of income to producers, effectively reducing their factor costs).

$$\text{Factor Cost} = \text{Market Price} - \text{Indirect Taxes} + \text{Subsidies}$$

$\text{Factor Cost} = \$12,500 - \$1,800 + \$600$ $\text{Factor Cost} = \$10,700 + \$600$ $\text{Factor Cost} = \boxed{\$11,300}$

The explanation that indirect taxes and subsidies cause market prices to differ from factor costs is also correct.