Explicit and implicit costs

Costs – costs costs of monetary resources that are required for production. For the company, such costs act as payment for the acquisition of factors of production.

Costs are divided into fixed, variable and total. Fixed costs-these are costs incurred by the firm in the production cycle. Fixed costs are determined by the enterprise independently. These costs will be present on all production cycles of the goods in the enterprise. Variable costs-costs that are transferred in full for the finished product. Total costs-the costs that the company incurs during the production phase. That is, the total costs represent fixed plus variable costs in the sum of.

Costs classified in the accounting (explicit costs reflected in the balance sheet), and another alternative. Accounting costs represent the price of the resources used in the prices of their acquisition. Opportunity costs – and the explicit and implicit costs.

In addition, there are external, private and public costs. External costs represent the fraction of the alternative costs that the company is not responsible. These costs were covered by funds of other members of society. For example, if a company pollutes your job and not nature is responsible for this, while spending on compensation of contamination will represent the external costs of other companies or entities. Private costs — part of the costs, which is formed directly by those who engaged in this activity. Social costs-the sum of external and private costs.

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The Division of the costs of implicit and explicit

As already noted, from the division of cost accounting and alternative flows classified into implicit and explicit.

Explicit costs are the total costs of the company on payment of used external resources, i.e. resources that are not from this company in the property. For example, it can be raw materials, fuel, materials, labor and so on. Implicit costs defines the cost of internal resources, i.e. resources that are in the firm of ownership.

An Example of implicit costs can include the owner's salary, which he would receive if he worked for wages. The owner of capital assets also incurs implicit costs, as he could sell his property and put the money in the Bank at interest or to surrender the property to rent and receive income. When solving current problems should be considered implicit expenses, and if they are large enough, it is better to change profession.

Thus, explicit costs – the alternative costs that take the form of payments to suppliers of intermediate goods and factors of production for the enterprise. This category of expenses includes wages to the workers, payment of transportation costs, paying suppliers, utilities, payment services, insurance companies, banks, monetary costs for the purchase and lease of machines, equipment, structures and buildings.

Under the implicit costs understand the opportunity cost of the use of resources, which belong directly to the company, that is, the unpaid costs. Thus, the implicit costs include monetary payments which the company could obtain in a more advantageous use of its own resources. For the owner of capital implicit cost is the profit that the property owner could obtain by investing the capital in any other field of activity, not specifically in this area.