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Explicit and Implicit Costs

Explicit and Implicit Costs - Consider the case of a small...

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Explicit and Implicit Costs: In the act of production a variety of inputs are used and a variety of services employed. Inputs such as labor, land, building premises, raw material, transport charges etc. are paid their remuneration by way of wages, rent, profits, interest etc. All these costs incurred are of explicit nature. Actual payments are made from time to time out of the revenue or capital of the firm. There are certain inputs or services utilized in the act of production which are not paid or are not adequately remunerated. These are the implicit costs of the firm.
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Unformatted text preview: Consider the case of a small producer carrying out productive activity: he may provide tea and snacks to the workers; or the owner-manager of a firm may carry goods to the market in his own motor car; or the owner may visit the factory even on Sundays and holidays and may work for extra hours. All these contributions are unpaid cost items in the act of production. These are implicit costs of production. Explicit inputs are obvious and receive full cash compensation; implicit inputs are not obvious and do not receive full value for their contribution....
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