There are two types of costs associated with production. Which of the following statements best describes the monetary payment associated with these costs?
A) Implicit costs require monetary payments while explicit costs do not.
B) Both implicit and explicit costs require monetary payments.
C) Explicit costs require monetary payments while implicit costs do not.
D) Neither implicit nor explicit costs require monetary payments.

Question

Quizplus · Accepted Answer

Explicit costs are the actual monetary payments made by a firm or producer for resources such as labor, raw materials, rent, utilities, etc. Implicit costs, on the other hand, represent the opportunity costs of using resources that the producer already owns or controls, such as the value of the entrepreneur's time, or the forgone interest on funds invested in the business. Implicit costs do not require a monetary payment, as they are not actual expenditures, but rather represent the foregone benefits or returns from other alternatives.

There Are Two Types of Costs Associated with Production