Question

An explicit cost is:

A. an implicit cost to the resource owner who receives that payment.
B. a payment made for resources not owned by the business itself
C. The only cost taken into accpunt when economic profits are calculated.
D. Always an excess of resource's opportunity cost.
E. omitted when accounting profits are calculated

Answer 1

An explicit cost is an out-of-pocket cost that involves actual payments, while implicit costs represent the opportunity cost of using resources already owned by the business. Explicit costs are considered in calculating both accounting and economic profits, while implicit costs are omitted when calculating accounting profits.

Step-by-step explanation:

An explicit cost is an out-of-pocket cost that involves actual payments. It includes expenses such as employee wages and office rent, which are tangible and measurable. In contrast, implicit costs represent the opportunity cost of using resources already owned by the business. This includes the owner's time and effort put into the business without earning a formal salary, as well as the depreciation of necessary goods and equipment.

Explicit costs are considered when calculating both accounting profits (total revenue minus explicit costs) and economic profits (total revenue minus total cost, including explicit and implicit costs). On the other hand, implicit costs are omitted when calculating accounting profits since they are not actual payments.