Final answer:
Start-up costs encompass both explicit costs, such as wages and rent, and implicit costs like the use of personal resources and time. Implicit costs represent the opportunity costs of resources the firm already owns.
Step-by-step explanation:
Costs associated with investigating the possibilities and creating or acquiring a trade or business are referred to as start-up costs. These start-up costs can be classified into different categories such as explicit costs and implicit costs. Explicit costs are direct, out-of-pocket expenses such as wages, rent, and material expenses. On the other hand, implicit costs represent the opportunity cost of using one's resources, like time and personal effort, which are not directly paid for but have a value associated with their use or sacrifice.
For example, using personal savings to fund the business might mean foregoing potential interest earnings, which represents an implicit cost. Similarly, time spent by the business owner in setting up the business is also an implicit cost as it could have been spent earning a salary elsewhere. Furthermore, transaction costs are the money, time, and effort necessary to make group decisions.