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State the distinction between explicit cost and implicit cost. Give an example of each.

Answer» <html><body><p></p><a href="https://interviewquestions.tuteehub.com/tag/solution-25781" style="font-weight:bold;" target="_blank" title="Click to know more about SOLUTION">SOLUTION</a> :Based on payment, costs are classified into two categories; they are Explicit Costs and Implicit Costs. Explicit Cost is the cost which is actually incurred by the <a href="https://interviewquestions.tuteehub.com/tag/organization-25610" style="font-weight:bold;" target="_blank" title="Click to know more about ORGANIZATION">ORGANIZATION</a>, during production.Salaries, wages and rent are few of the examples of the explicit cost. On the other <a href="https://interviewquestions.tuteehub.com/tag/hand-1015171" style="font-weight:bold;" target="_blank" title="Click to know more about HAND">HAND</a>, Implicit Cost, are just <a href="https://interviewquestions.tuteehub.com/tag/opposite-1137237" style="font-weight:bold;" target="_blank" title="Click to know more about OPPOSITE">OPPOSITE</a> to the explicit cost, as the organization does not directly incur them, but they are implied in nature which does not involve a cash payment. The former is an out of pocket cost, while the <a href="https://interviewquestions.tuteehub.com/tag/latter-7376806" style="font-weight:bold;" target="_blank" title="Click to know more about LATTER">LATTER</a> is an opportunity cost.Explicit Cost refers to the one paid to the factors outside the firm. the interest on owner's capital, or the salary to the owner are the prominent examples of the implicit cost. Conversely, Implicit Cost are the one that arise from using the asset rather than renting it out.</body></html>


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