CONCEPTS OF EXPLICIT AND IMPLICIT COSTS

CONCEPTS OF EXPLICIT AND IMPLICIT COSTS. These costs include direct cash paid for transportation, salaries, raw materials, advertisement, etc.

Explicit costs

are payment that are made for resources purchased from outside. In other words, it refers to all payments made directly for the materials used during the course of production.

These costs include direct cash paid for transportation, salaries, raw materials, advertisement, etc.

Implicit cost:

Implicit costs refer to the costs of the resources supplied by the owners e.g. owners of managerial skills, financial resources and owner- occupied buildings.

That is, implicit cost refers to the cost wt of the firm directly incurs on production, e.g. the investor’s salary, profit and other personal expenses.

As a of the involvement of some opportunity elements, these cost are usually classified as implicit.

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