Explicit Cost Vs Implicit Cost

In this section, I’ll be explaining the difference between implicit and explicit costs. I will also provide two examples when they differ.

An explicit cost is the amount of expenses a business incurs when conducting an activity. This type of cost includes but not limited to salaries, materials, rent and utilities. (Explicit Cost, n.d.).

An implicit cost is considered the opportunity cost of an activity. This is when the firm use its own resources to cover the expense of an activity. If the firm owns a building and use that building to conduct business rather than renting, it is a type of implicit cost. (Implicit Cost, n.d.).

The difference is that with explicit cost you pay for the output while with implicit you utilize what you have.

A man inherits a piece of land from a relative, on the land he has orange trees that provides luscious fruits. It would be an implicit cost to him to pick the oranges and sell them to market vendors or to juice the fruit to make his won orange juice. On the same breath, it would have been an explicit cost to hire help to pick the oranges, a machine to juice them and bags to package them. Using the resource of the orange trees to turn into a business would incur explicit cost,

Where she currently works, her salary is $1800 monthly. After calculating all the cost for equipment, rental and hired help, she pays $1000. She projected her earnings to be $2100 monthly. The accounting profit would be $2100-$1000=$1100. What she is left with in her pocket after covering all the expenses is the accounting profit. The economic profit would be $2100-$1000-$1800= -$700. Even though the implicit cost of $700 is lost, the hairdresser is looking at an increase for the upcoming months with new clients as well as a lower cost for equipment, Equipment would only need maintenance. She is willing to take that risk and branch off on her