Explicit and Implicit Cost

Explicit costs or out of pocket costs involve an actual payment to hire labour or purchase inputs required in production. They include the wages to hire labour, the interest on capital, rent on buildings and equipment and cost of raw material and semi finished goods. Implicit costs refer to the value of inputs owned and used by the firm in its production process. The amount, which a firm could earn by selling or hiring these inputs, is the implicit cost or the book cost.

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