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Question
Distinguish between explicit cost and implicit cost.
Distinguish Between
Solution
- Explicit Cost:
- Payment made to others for the purchase of factors of production.
- It includes wages, payment for raw material, rent, interest, expenditure on transport, and advertisement.
- It is also called accounting cost or out of pocket cost or money cost.
-
Implicit Cost:
- Payment made to the use of resources that the firm already owns.
- Cash payment is not made for the use of the producer’s own land, building, machinery, and other factors of production.
- Implicit cost is also called imputed cost or book cost.
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Cost Concepts
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