What is the principle distinction between explicit costs and implicit costs? A. There is no real difference between explicit and implicit costs. B. Explicit costs are direct, out-of-pocket payments, while implicit costs are all foregone opporunity costs. C. Implicit costs must be paid immediately, but explicit costs need to be paid only in the long run. D. Implicit costs are usually larger than explicit costs.

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Business

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23 April, 13:36

What is the principle distinction between explicit costs and implicit costs? A. There is no real difference between explicit and implicit costs. B. Explicit costs are direct, out-of-pocket payments, while implicit costs are all foregone opporunity costs. C. Implicit costs must be paid immediately, but explicit costs need to be paid only in the long run. D. Implicit costs are usually larger than explicit costs.

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Nehemiah Fitzpatrick · Answer 1

The answer is option B. Explicit costs are direct, out-of-pocket payments, while implicit costs are all foregone opportunity costs.

Explanation:

The explicit costs are the costs that are directly associated to a decision or product that must be paid. Thus, they are out of pocket payments. For example, a business's explicit cost will be the payment for wages and salaries.

Implicit costs, on the other hand, are the opportunity costs of forgoing the benefits from other alternatives that could have been chosen. The implicit cost does not require a monetary payment and is the opportunity cost of benefit forgone. An example of this cost would be, the salary given up or that could have been earned by a person who has started his own business.