Difference Between Implicit And Implicit Cost

University of the People

Written Assignment Unit 5

Explain the difference between implicit and explicit costs. Give two examples of when an explicit cost is different from an implicit cost.

Explicit costs are those costs that are clearly stated and recorded whereas implicit costs are those that are implied, unstated but have been understood as a necessary component economically. These are opportunity costs, benefits forgone by not using the factor of production in the next most profitable way. According to Openstax (20160, they represent the opportunity cost of using resources already owned by the firm (p. 1590). Explicit Cost can be simply be said as the cost incurred by the organization during production while Implicit Cost are cost the organization

They are often incurred regardless of whether or not revenue is tied to it or not or it could be the cost of resources that are not being charged directly to the firm at all. This is not so with explicit costs.

In your own words, explain the difference between accounting and economic profit. Give two examples of when they differ.

Accounting profits are sales revenues minus explicit cost of a business whereas economic profit consists of sales revenue minus explicit and implicit costs. The difference is on the fact that economic profit substances implicit cost too, while accounting profit may include depreciation.

For example, if I run a business and sells goods worth $10,000, the cost of sales being $4,500. If the premises used for the business could be put to alternative use for rent earning $1,000. And the capital if invested in the bank will earn me $1,500 interest. In addition to that suppose i was employed where am earning $2,500. The difference in accounting gross profit and the economic profit or loss earned can be calculated as follows:- $ $

Sales

167). A firm experience economies of scale when an increase in the scale of production results in a more than proportionate increase in output. These economies might be defined according to Grant (2000) as those aspects of increasing size which lead to falling long-run average costs. This show that, economies of scale only occur in the long run because they are associated with alteration of some or all of the firm’s fixed factors or where all inputs are being allowed to increase together (OpenStax, 2016, p. 170) to produce. In economics, economies of scale are also understood to be classified either internal (within the firm0 or external economies (originating outside the