What is Implicit Cost?
The estimated value of the inputs supplied by the owners along with the normal profits is known as Implicit Cost.
For example, interest on own capital, rent of own land, salary for one’s services as an entrepreneur, etc. These are the costs associated with self-supplied factors.
Thus, cost in economics refers to both the actual money spent on inputs (also known as the explicit cost) and the imputed value of the inputs provided by the owners (also known as the implicit cost).
Difference between Explicit Cost and Implicit Cost
|
Basis |
Explicit Cost |
Implicit Cost |
|---|---|---|
|
Meaning |
Explicit Cost is a payment made to outside parties for hiring the factor services. |
Implicit Cost is the cost of self-supplied factors. |
|
Money Payment |
It includes paying with actual money to purchase and hire inputs. |
It consists of the firm’s imputed value of factors. There is no monetary payment involved. |
|
Example |
Payment of salaries, Rent, Insurance premiums, etc. |
Interest on capital, Rent of self-owned land, etc. |
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