A farmer takes a farm on rent and carries on farming with help of family members. Identify explicit and implicit cost from this information. Also, give reasons.
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Implicit cost is the imputed or calculable worth of inputs equipped, by the owner of the firm himself.
Explanation:
- For producing goods, a firm requires issue inputs (like services of land, labour, capital etc.) and non-factor inputs (like raw material, electricity, fuel etc.).
- Actual money spent by a firm on shopping for and hiring of the issue and non¬factor inputs is known as a specific value. A farmer takes a farm on rent according to the question. So, the rent he pays to landloard is the explicit value.
- Implicit cost is the imputed or calculable worth of inputs equipped, by the owner of the firm himself. As per question, if a farmer carries on farming with the help of members of the family, even then the imputed wages will be associate degree implicit value.
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