Question

What is th difference between how economists calculate "costs" versus how accountants calculate "costs"? This is not a long essay - be concise and focus on the main point.

Answer 1

Accountants calculate what is called the 'accounting costs'. Accounting costs are the explicit costs i.e. which can be seen going out of your account. Explicit costs include input costs, rent, wages, costs of advertisements, managerial costs, etc.

Economists calculate the 'economic costs'. Economic costs include both explicit and implicit costs. Explicit costs include input costs, rent, wages, advertisement costs, managerial costs, etc and implicit costs are the opportunity costs i.e. the gain which is forgone in order to remain in current employment. Example of implicit cost is the salary which the owner can get if he/she takes regular employment in any other firm rather that running his/her own business.

Thus,

Accounting Cost = explicit costs

Economic Costs = explicit costs + implicit costs