Get premium membership and access questions with answers, video lessons as well as revision papers.
Distinguish between implicit and explicit costs.
1. Implicit Costs:
These are costs of self-owned, self employed resources used by a firm in the process of production (abstract costs) eg. opportunity cost, individual managerial skills etc. Such costs are not fixed and it?s the owner who evaluates them.
These costs are not expressly incurred but are implied. An example would be: a firm that operates its business from a building situated on a piece of land owned by the owners of the firm. Practically, if the land was rented out to another person (3 rd party) this 3rd party would pay rent on it. Likewise, theoretically, the business having its premises on this land should charge itself the rent it would be paying if it was not owning (holding) the land.
Otherwise, the stay on the land would not be economical since the opportunity cost of it would be too high. This is because if this cost is not charged a large amount is forgone in terms of rent „receivable
2. Explicit Costs:
These are costs of resources hired or purchased by a firm for use in the production process eg. wages, transport cost etc. profits calculated by only taking into account explicit costs are known as financial profits. Since such costs arise from acquisition of inputs (resources), the amount is determined by price.
NB: Profits calculated on the basis of both implicit and explicit costs are called economic profits
OR
Actual money expenditure on inputs are called explicit costs. examples. expenditure on
hiring factor services.
Implicit costs refer to the estimated value of inputs provided by the owner. Examples
Estimated rent of the building owned by the entrepreneur.
lydiajane74 answered the question on May 12, 2018 at 12:32
- Explain the importance of personal hygiene(Solved)
Explain the importance of personal hygiene.
Date posted: May 12, 2018. Answers (1)
- Use real time illustrations to discuss how various demographic dispositions impact on economic performance of a least developed country.(Solved)
Use real time illustrations to discuss how various demographic dispositions impact on economic performance of a least developed country.
Date posted: May 12, 2018. Answers (1)
- Explain the superiority of Optimum Population Theory over The Malthusian Population Theory(Solved)
Explain the superiority of Optimum Population Theory over The Malthusian Population Theory.
Date posted: May 12, 2018. Answers (1)
- Discuss FIVE causes of poverty in Less developing countries.(Solved)
Discuss FIVE causes of poverty in Less developing countries.
Date posted: May 12, 2018. Answers (1)
- Describe the Neo-Marxist theory of economic development(Solved)
Describe the Neo-Marxist theory of economic development
Date posted: May 12, 2018. Answers (1)
- Collective bargaining offers many advantages to employers, workers and society at large. Explain the importance of collective bargaining.(Solved)
Collective bargaining offers many advantages to employers, workers and society at large. Explain the importance of collective bargaining.
Date posted: May 11, 2018. Answers (1)
- Discuss FIVE roles of industrial sector in economic development of a nation(Solved)
Discuss FIVE roles of industrial sector in economic development of a nation.
Date posted: May 11, 2018. Answers (1)
- Briefly explain SIX characteristics of money(Solved)
Briefly explain SIX characteristics of money.
Date posted: May 11, 2018. Answers (1)
- Explain the different preferences for risks by individual farmer(Solved)
Explain the different preferences for risks by individual farmer.
Date posted: May 11, 2018. Answers (1)
- Briefly define the term ' trade union' and explain why do workers join a trade union?(Solved)
Briefly define the term ' trade union' and explain why do workers join a trade union?
Date posted: May 10, 2018. Answers (1)
- Explain FOUR factors affecting the size of a National Income.(Solved)
Explain FOUR factors affecting the size of a National Income.
Date posted: May 10, 2018. Answers (1)
- Explain five factors which determine the productivity of labour(Solved)
Explain five factors which determine the productivity of labour.
Date posted: May 9, 2018. Answers (1)
- Briefly describe four theories used to determine wages of labourers(Solved)
Briefly describe four theories used to determine wages of labourers.
Date posted: May 9, 2018. Answers (1)
- Explain the reasons for studying International Economics(Solved)
Explain the reasons for studying International Economics
Date posted: May 9, 2018. Answers (1)
- Outline the assumptions of Economic Order Quantity (EOQ)(Solved)
Outline the assumptions of Economic Order Quantity (EOQ).
Date posted: May 8, 2018. Answers (1)
- Outline methods used to derive Economic Order Quantity (EOQ)(Solved)
Outline methods used to derive Economic Order Quantity (EOQ).
Date posted: May 8, 2018. Answers (1)
- Outline the types of inventory control system.(Solved)
Outline the types of inventory control system.
Date posted: May 8, 2018. Answers (1)
- Outline objectives of inventory control(Solved)
Outline objectives of inventory control
Date posted: May 8, 2018. Answers (1)
- Discuss the impact of agricultural activities on environmental degradation(Solved)
Discuss the impact of agricultural activities on environmental degradation.
Date posted: May 6, 2018. Answers (1)
- Discuss causes of market failure in environmental economics(Solved)
Discuss causes of market failure in environmental economics.
Date posted: May 6, 2018. Answers (1)