Question

A producer borrows money and opens a shop. The shop premises is owned by him. Identify the implicit and explicit cost.
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Answer 1

Answer:

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Explanation:

A producer borrows money and opens a shop. The shop premises is owned by him. In the above example, interest paid on borrowed money will be explicit cost, whereas, the imputed rent of the shop premises is implicit cost. ..

Answer 2

Implicit costs - When the company utilizes its capital, it foregoes the interest it could have earned in interest.

Explicit costs - Rent, wage, tax, and all other expenses

Explanation:

Implicit Cost is an opportunity cost that develops when a corporation devotes internal resources to a project without receiving any explicit reward.

Explicit costs are ordinary business expenses that appear in the general ledger and have a direct impact on the profitability of a company.