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Suppose you decide to open a new ice cream business, called, "I-LOVE-ICE-CREAM" in Riverside, California. What...

Suppose you decide to open a new ice cream business, called, "I-LOVE-ICE-CREAM" in Riverside, California. What are (1) explicits and (2) implicit costs incurred, as you open and run this business?

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Answer #1

EXPLICIT COSTS

These are the costs that are explicitly paid out and are out of pocket expenses for the firm.

  • Payment for wages to workers or employees hired.
  • Payment for rent if land is taken on rent basis.
  • Payment for interest on amount taken as loan to run the business.
  • Payments for the raw materials such as ingredients required to make ice cream.

IMPLICIT COSTS

These are the opportunity costs of the resources that are already owned by the firm and are used in business.

  • Salary of myself foregone as I am self employed in ice cream business
  • Loss of interest earned on the money invested in the business( if any).
  • Loss of rent if own land is used for the business.
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