Answer
A firm’s explicit costs are the monetary payments it makes to those from whom it must purchase resources that it does not own. Because these costs involve an obvious cash transaction, they are referred to as explicit costs. For example, a person buying an office on rent has to bear the explicit cost of the office.
A firm’s implicit costs are the opportunity costs of using the resources that it already owns to make the firm’s own product rather than selling those resources to outsiders for cash. Because these costs are present but not obvious, they are referred to as implicit costs. For example, a person using an office owned by himself/herself is bearing a implicit cost of the office which he could have been borne by another person by renting it to somebody else.
Work Step by Step
The definition is as given above, explained using examples.
