If a firm has implicit costs as well as explicit costs

Question

Quizplus · Accepted Answer

Implicit costs refer to opportunity costs, which are non-monetary costs that arise from using resources in a particular way. Explicit costs, on the other hand, are tangible, monetary expenses such as wages, rent, and supplies. When a firm incurs both implicit and explicit costs, its accounting profits will be higher than its economic profits. This is because accounting profits only take into account explicit costs, while economic profits deduct both explicit and implicit costs from revenue. Therefore, the presence of implicit costs results in a lower economic profit than accounting profit.

If a Firm Has Implicit Costs as Well as Explicit