EXPLICIT VS IMPLICIT COSTS

The difference between Explicit vs Implicit costs are as follows:

EXPLICIT COSTS

Explicit costs refer to all those expenses made by a firm to buy goods directly. They include, payments for raw material, taxes and depreciation charges, transportation, power, high fuel, advertising and so on.

According to Leftwitch,

“Explicit costs are those cash payments which firms make to outsiders for their services and goods.”

Wages to workers, money paid for raw materials and semi-finished goods, various fixed costs etc. are examples of explicit costs. The producer takes money out of his pocket and pays to others. These are payments to attract resources from other uses to the use made by a particular producer. They are also known as Accounting Costs or Historical Costs.

IMPLICIT COSTS

Implicit costs are the imputed value of the entrepreneur’s own resources and Services. In fact, these costs refer to the implied or unnoticed costs. They include the interest on his own capital, rent on his land, wages of his own labour etc. Moreover, these costs go to the entrepreneur himself and are not recorded in practice.

According to Leftwitch

“Implicit costs are the costs of self-owned, self employed resources.”

BASIS OF DIFFERENCE	EXPLICIT COST	IMPLICIT COST
Meaning	The costs which involve outflow of cash due to the use of factors of production is known as Explicit Cost.	The costs in which there is no cash outlay, is known as Implicit Cost.
Alternatively known as	It is also known as Out-of-pocket Costs	It is also known as Imputed Costs
Occurrence	This is the Actual cost in nature.	This is Implied cost in nature.
Recording and Reporting	It is recorded and reported in the books of accounts.	It is not recorded and reported in the books of accounts.
Estimation of Cost	The estimation of cost is Objective.	The estimation of cost is Subjective.
Which profit can be calculated with the help of cost?	This helps in calculating Accounting Profit and Economic Profit.	This helps in calculation of Economic Profit.
Example	Salaries, rent, advertisement, wages, etc.	Interest on owner’s capital, Salary to owner, rent of owner’s building, etc. which do not occur in reality.

Also Study	Also Study	Also Study	Also Study
Theory of Demand	Law of Demand	Demand Function	Exceptions of law of demand
Elasticity of demand	Change in demand	Price elasticity of demand	Law of demand Vs Elasticity of demand
Factors affecting price elasticity of demand	Production function	Short run vs long run production function	Law of variable proportions
Types of demand	Managerial economics	Characteristics of managerial economics	Scope of managerial economics
Utility analysis	Law of diminishing marginal utility	Law of equi marginal utility	Consumers Equilibrium
Indifference curve analysis	Consumer equilibrium using indifference curve analysis	Relationship between TP, AP and MP	Law of increasing returns
Law of diminishing returns	Law of constant returns	Returns to Scale	Economies and diseconomies of scale
Concept of costs	Relationship between AC and MC	Traditional theory of costs	Modern theory of costs
Explicit vs Implicit costs	Revenue	Perfect competition	Monopoly
Price discrimination	Difference between perfect competition and monopoly	Perfect Vs Monopolistic competition	Monopoly and monopolistic competition
Product differentiation strategy	Monopolistic competition	National Income in India	Measurement of national income in India
Consumption function	Keynes Psychological law of consumption