Implicit Cost

In economics, an implicit cost occurs when one foregoes an alternative action but does not make an actual payment. (For instance, the explicit cost of a night at the movies includes the moviegoer's ticket and soda, but the implicit cost includes the pay she would have earned if she had chosen to work instead.) Implicit costs are related to forgone benefits of any single transaction.

Examples of implicit costs

• A firm's use of its own capital. This is considered an implicit cost because the capital could have been rented to another firm instead. This rental income foregone, or the implicit rental rate of capital, is the firm's opportunity cost of using its own capital. This implicit rental rate can be broken down beyond interest forgone.^[clarify]
• A firm's use of its owner's time and/or financial resources.
• Economic depreciation.

Implicit cost and economic profit

Economic profit equals total revenues minus both implicit and explicit costs. In contrast, accounting profit equals total revenues minus explicit costs. Since economic profit includes opportunity costs, it will always be less than or equal to accounting profit.

See also

• Explicit cost
• Economic profit
• Opportunity cost

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