Explicit Costs and Implicit Costs Concepts

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Q1: explicit costs and implicit costs concepts Explicit Cost Explicit cost is defined as the direct payment which is supposed to be made to others while running business. This includes the wages, rents or materials which are due in the contract. The explicit cost is the expense done in business which can easily be identified and accounted for in the business at any stage. The explicit cost represents the out flows of cash in clear and obvious terms. When any out flow of credit occurs in a business, it should be identified and should be accounted for immediately. Explicit cost is defined as the business expanse which is recorded with the passage of time. When cash starts out flowing from any business, it can cause the profit generation…show more content…
A competitive firm produces less than the total amount of this product supplied to the market that its output decisions have no impact on the market. Because of this, firms operating under such circumstances which called perfect competition have no influence over the price of their product. They are called "price takers" because the price established in the market as a whole is the price they will get for their output. This means that the firm’s marginal revenue is constant over the whole range of its possible and that consequently, marginal revenue, average revenue and price are all the same amount. This assumption that price does not change with output is characteristic of a truly competitive firm. If the firm gets the same price for each unit it produces, the increase in its revenues resulting from producing an additional unit of output is always the same. In other words the marginal revenue is always the same. Moreover, if the marginal revenue is always the same, the average of all these increments to revenue must always be the same. Thus, average revenue and marginal revenue for a competitive firm always have the same value. It follows that a firm operating under conditions of perfect competition faces a constant price whatever its level of output because the average revenue and price are the same by definition. If the firm can sell all it can produce at the going market price, it will be faced with a perfectly

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