Question

Distinguish between explict cost and implict cost. Give an example of each.

Answer 1

Explicit Cost (cost of hired factors): Actual money expenditure on inputs or payments made to outsiders for hiring their factor services: wages to employees, rent to landlord.

Implicit Cost (cost of self supplied factors): Estimated value of the inputs supplied by the owner including normal profit: interest on own capital, rent of own land, salary to the entrepreneur.