|Section 1: Explicit Costs and Implicit Costs|
|Microeconomics - Unit 5|
The Difference Between Explicit and Implicit Costs
What are the Explicit Costs and Implicit Costs of Attending College?
In addition, you estimate that your annual implicit costs are $30,000 because this is the money you could have earned had you not attended college. Your total annual cost of attending college is now $55,000 ($25,000 plus $30,000). Thus, your total cost of attending four years of college equals 4 times $55,000, or $220,000.
What are the Explicit and Implicit Costs of Operating a Business?
Problem: Let's say that you are running a business and incur the following monthly expenses: labor costs are $80,000; raw materials and business supplies are 30,000; equipment leasing expenses are $7,000; finance charges on loans are $3,000. You are not paying rent, because you own the building in which you operate the business. If you had rented it out, however, you would have received $12,000 in rent income. You also estimate the value of your own time to equal $40,000. What are your implicit, explicit, and economic costs?
Solution: Explicit costs are $80,000 + $30,000 + $3,000 +$7,000 = $120,000.
|Last Updated on Wednesday, 29 July 2015 11:00|