If a firm has implicit costs as well as explicit costs

Question

Quizplus · Accepted Answer

Implicit costs are the opportunity costs of using resources that the firm already owns, such as the time or effort of the owner, whereas explicit costs are the actual out-of-pocket payments made by the firm for the use of inputs. If a firm has implicit costs as well as explicit costs, economic profit will be less than accounting profit because economic profit takes into account both explicit and implicit costs, whereas accounting profit only considers explicit costs. Therefore, economic profit will be lower than accounting profit when implicit costs are present.

If a Firm Has Implicit Costs as Well as Explicit