Costs

Costs

Explicit Costs

Ex:pay wages, pay rent

Implicit Costs

Ex:The opprtunity cost of the owners time.

Remember:

The costs of something is

what you give up to get it

Because of the costs (Explicit and Implicit) that  influence the firm.

Costs As opportunity costs

• Accountant measure the explicit costs but often ignore the implicit costs.
• Economist include all opportunity costs when measuing costs (such as firms own building for which it doesn't pay rent)

Accounting Profit = Tr-explicit costs
Ecomomic profit   = TR- Explicit costs-Implicit costs

Opportunity Costs : Explicit Costs+Implicit Costs