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An individual is both the owner and the manager of a shop taken on rent. Identify implicit cost and explicit cost from this information. Explain. |
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Answer» Solution :(I) For producing a commodity, a firm requires factor INPUTS (like services of land, labour, capital etc.) and non-factor inputs (like raw MATERIAL, ELECTRICITY, fuel etc.). (ii) Actual money spent by a firm on buying and hiring of factor and non- factor inputs is called explicit cost. As PER question, rent paid for the shop is an explicit cost. (iii) Implicit cost is the imputed or estimated value of inputs supplied by the owner of the firm himself. As, per question, imputed salary of the owner working as MANAGER, imputed interest on self-supplied capital, etc. are implicit costs. |
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