Concept explainers
Explicit and implicit cost with example.
Explanation of Solution
Explicit costs are the payments made to the resources in order to attract the resource from other uses. For example, wages to the employees, price for the inputs.
Implicit cost is the given up activity in order to take up the other activity. For example, the owner of the firm has to give up the salary he could earn by getting employed in some other firm, in order to manage his own firm. The
The explicit cost of attending college includes all the costs incurred such as college fee, tuition fee, cost of books and other stationeries. This also includes the cost of transportation.
The implicit cost that is involved for the person who go to college is the chance that he loss of getting employed and earn some income.
Concept introduction:
Explicit cost: Explicit cost refers to a direct cost given by the firm to others in the process of running business such as, wages, rents, materials etc. Thus, fixed cost and variable cost are included in the explicit.
Implicit costs: An implicit cost refers to any costs that has previously incurred but are not initially shown or reported as separate expenditures. It refers to an opportunity costthat arises when a firm allocates internal resources.
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Chapter 9 Solutions
MICROECONOMICS (LL) W/ACCESS