Question

Contrast accounting cost vs. economic cost

Answer 1

Accounting costs are explicit costs, which are the costs actually incurred and paid by the business. Examples are: Material cost, wages, rent, interest paid etc.

Opportunity cost (Implicit cost) are benefits foregone by choosing one alternative over another. These are not actual costs that are incurred and paid for. Examples are: Interest foregone on saving which is invested in alternative business, or salary given up by quitting a job to start own business.

Economic cost = Accounting costs + Implicit costs, therefore

If Implicit cost > 0, Economic cost > Accounting cost.