10.6 Explicit and Implicit cost (Economic and ...

Explicit costs

It is a direct payment made to others in the course of running a business, such as wage, rent and materials. The explicit cost data are used to calculate accounting profit for tax purposes. Similarly, taxes and national income accounts are based on accounting data.

Explicit cost is considered monetary opportunity cost to a firm of using resources supplied by the market. That means how much money the company spends on buying stuff it needs to operate, such as services and materials.

Implicit costs

These are the opportunity costs of resources the firm's owner makes available for production with no direct cash outlays. In other words, an implicit cost is any cost that results from using an asset instead of renting, selling, or lending it and implicit cost data needed to estimate economic profits or losses. Business decisions tend to be rational based on expected economic costs and profits Implicit cost is the opportunity cost of using an owner-supplied resource.