Give a brief description of implicit and explicit cost?

Answer 1

Explicit costs are payments the firm makes for inputs such as wages and salaries to its employees, whereas implicit costs are non-expenditure costs that occur through the use of self owned resources such as foregone income.

Answer 2

Explicit cost are costs that you know such as wages, rent, materials, ect.

Implicit cost are costs that are there but hard to put an actual number on. Example would be a sales person being used for covering an admin job instead of doing their sales job. How much income opportunity did you lose? There is no way to know for certain but it did cost something.

Answer 3

An implicit cost is a cost that a business has had that is not shown as a separate cost. An explicit cost is a cost that has also occurred. However with an explicit cost the cost is clearly noted.

Answer 4

Economic vs. Accounting Costs

We know that the value of the best alternative forgone is the economic cost of anything from lard to romance. All costs, whether monetary or nonmonetary are opportunity costs. One way to break down economic (opportunity) costs of production is to view them as either explicit or implicit costs.

Explicit costsrequire outlays of money.

For example, wages paid to employees, rent payments, and utility bills are all explicit costs.

Implicit costsare the opportunity costs of resources the firm's owner makes available for production with no direct cash outlays.

Examples include the value of an entrepreneur's labor and the interest that could be earned were the owners' assets (including the values of stock in corporations) not tied up in the business. In entering the software business and creating Windows, and subsequently Microsoft, Bill Gates dropped out of college and made a conscious decision to surrender what wages he could have made as a college graduate if his endeavor failed. Though it paid off for him, similar decisions are made on a daily basis by people all over the world and it doesn't always end favorably for everyone. Firms must all bear both implicit and explicit costs into consideration to make rational business decisions.

Economic costsof production include both explicit and implicit costs.

On the other hand, bookkeeping tends to focus on monetary costs. Bookkeeping is a mechanical exercise focused only on explicit costs; it primarily records flows of funds and provides a base for computing taxes. Accounting requires evaluation of data for decision-making, a purpose not well served by some standard bookkeeping practices for cost accounting or tax accounting. Fortunately, standards for managerial accounting increasingly conform to the economic view of cost. Let us look at some problems that emerge when implicit costs are ignored.

Economists include explicit and implicit costs when they think of total (opportunity) cost, while bookkeepers commonly fail to include in total cost many implicit costs incurred by the owners of a firm.

Economic profitoccurs only when a firm's revenue exceeds all costs, including explicit and implicit costs.

Here is an example of how economic profits and accounting profits differ. Imagine that two years after receiving your college degree your annual salary as an assistant store manager is $28,000, you own a building that rents for $10,000 yearly, and your financial assets generate $3,000 per year in interest. On New Year's Day, after deciding to be your own boss, you quit your job, evict your tenants, and use your financial assets to establish a pogo-stick shop.

At the end of the year, your books tell the following story:

Total Sales Revenue$130,000

Cost of pogo sticks $85,000

Employees' wages $20,000

Utilities $5,000

Taxes $5,000

Advertising expenses $10,000

Total (Explicit) Costs$-125,000

(subtract from revenue)

Net (Accounting) Profit of $5,000!"

Now we will subtract our implicit costs. Being in this business caused me to lose as income:

Salary -$28,000

Rent -$10,000

Interest -$3,000

Total Implicit Costs-$41,000;

Therefore, I've had an

economic profit that's

negative, a loss of -$36,000

This business is in loss

Answer 5

the implicit involves the cost which involve what the firm must give up in order to use factors ehich neither purchases nor hires

Answer 6

It is a non-expenditure costs that occur through the use of self owned resources such as foregone income.