Implicit & Explicit Costs
It’s time again to explore this week’s session with your colleagues! Select a relevant microeconomics industry
of your choice in the region in which you reside. Differentiate between the firm’s implicit and explicit cost and
discuss the firm’s variable and fixed costs. For your chosen industry please express whether your firm is
economically viable or not. Is your firm profitable? Do they have an optimistic or uncertain outlook for the near
future?
Locate a recent article or event (published within the last year) that highlights your relevant microeconomics
topic. Use the Hunt Library, newspapers, new stations, or other credible sources to discuss how your topic
aligns with microeconomics. Include the following in your discussion:
State the article or event you selected.
Identify the microeconomic concept(s).
Describe your findings.
Analyze the relevance to real-life applications.
Sample Solution
Implicit and explicit costs
Implicit costs are the perceived or estimated loss in revenue from undertaking an action, but they do not have an actual transfer of money and are not recorded in accounting balance sheets. An example of an implicit cost is having to deal with a fire alarm, which causes a factory to shut down for two hours. Explicit costs are measurable and will be included in profit/loss accounts. For example, if the firm hires a new worker, their salary will be an explicit cost which will be put on the accounting sheet. This two definitions of costs are important for distinguishing between two conceptions of profit, accounting profit and economic profit.
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