Give a brief description of "Implicit and explicit cost" | Managerial Economics Notes

Give a brief description of "Implicit and explicit cost" | Managerial Economics Notes

Answer:

Explicit  costs  are  those  costs which  are  in  the  nature  of  contractual payments and are paid by an entrepreneur to the factors of production [excluding  himself]  in  the  form  of  rent,  wages, interest  and  profits, utility  expenses,  and  payments  for  raw  materials  etc.  

 

They  can  be estimated and calculated exactly and recorded in the books of accounts.

 

Implicit or imputed costs are implied costs. 

 

They do not take the form of cash outlays and as such do not appear in the books of accounts. 

 

They are the earnings of owner-employed resources. 

 

For example, the factor inputs owned by the entrepreneur himself like capital that can be utilized by himself or can be supplied to others for a contractual sum if he himself does not utilize them in the business.

 

 It is to be remembered that the total cost is a sum of both implicit and explicit costs