Q6Managerial Economics & Financial Accounting
Question
2 marks
Define Explicit and implicit costs with example. (1 +1= 2)
Answer
Explicit costs are out-of-pocket expenses, while implicit costs are imputed costs of self-owned resources.
- Explicit Costs: Actual out-of-pocket cash payments made to outsiders (e.g., paying wages, buying materials). - Implicit Costs: The imputed or opportunity cost of self-owned resources used by the entrepreneur (e.g., the owner using their own building without paying rent).