Question

Charges that must be paid for the use of factors of production such as labor and capital, together with estimated depreciation cost, are:

Answer 1

Explicit cost

Explicit cost are the payments made directly for the use of factors of production while running a business. Labor and capital are paid wages and rent respectively which are explicit cost. Depreciation cost is also an explicit cost as depreciation occurs for a machine and that machine was purchased at the beginning of the year so depreciation cost is considered as a part of explicit cost. Explicit costs are used to compute accounting profit. Accounting profit equals total revenue minus explicit costs.