Question

economic costs of an input include group of answer choices only implicit costs. only explicit costs. both implicit and explicit costs. whatever management wishes to report to the shareholders.

Answer 1

Economic costs of an input include both implicit and explicit costs, which encompass actual payments for resources and the opportunity cost of using owned resources, respectively.

Step-by-step explanation:

The economic costs of an input include both implicit and explicit costs. Explicit costs are out-of-pocket costs such as wages, rent, and material costs that a firm incurs. Implicit costs, on the other hand, represent the opportunity cost of using resources that the firm already owns, like using personal time to work in the business without a formal salary, or depreciation of the company's equipment.

It's important to consider both types of costs to understand the total economic cost truly. For example, if a business owner uses a part of their home as a retail space, the foregone rent from not leasing it out is an implicit cost. Similarly, when a business owner devotes their time to the business instead of taking another job, the salary from the potential job is an implicit cost. Economic profit is then calculated as total revenues minus the sum of explicit and implicit costs.