implicit cost

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Implicit Cost

The opportunity cost of an activity. Implicit costs are what a company or individual could have earned had a different decision been made. For example, suppose an independent consultant has two clients and she spends some time working on the first client's project. The implicit costs are what the consultant would have made had she worked on the second client's project instead. Implicit costs contrast with explicit costs, which are what someone actually spends on an activity. It is also called an indirect cost.

implicit cost

or

imputed cost

the OPPORTUNITY COST to a FIRM of using resources owned by the firm itself to produce its output. For example, if a firm occupies a building that it owns, it forgoes the opportunity of renting it out for some other use. Thus, implicit costs represent the sacrifice of income that could have been earned by renting out (or selling) the firm's resources to others.

To achieve an accurate measure of the total cost of producing goods or services, the firm must impute a rent to itself using a SHADOW PRICE based upon the current market rates for renting the property See PROFIT, EXPLICIT COST.

implicit cost

or

imputed cost

the OPPORTUNITY COST to a FIRM of using resources owned by the firm itself to produce its output. For example, if a firm occupies a building that it owns, it foregoes the opportunity of renting it out for some other alternative use. Thus, implicit costs represent the sacrifice of income that could have been earned by renting out (or selling) the firm's resources to others.

To achieve an accurate measure of the total cost of producing goods or services, the firm must impute a rent to itself based upon the current market rate for renting the property See PROFIT, EXPLICIT COST, SHADOW PRICE.

References in periodicals archive ?
As Daniel points out, there are a number of explicit and implicit costs and benefits to be weighed in PRT decisions.
The issue price is set at a rate that captures much of the cost of buying and storing the wheat, but there are implicit costs that are not fully captured.
For its part, global trade is well established as a positive sum game for all countries open to it, but it clearly does not come without explicit and implicit costs.
We add to this literature by considering the implicit costs of FDIC insurance.
Indeed, where an explicit money cost is part of what is foregone, examples may reinforce the fact that opportunity cost also includes additional implicit costs such as the value of time.
It provides a matrix of these costs, divided vertically into nonmonetary and economic costs, and horizontally into direct costs, implicit costs and spillover costs.
On the one hand, less equipment is needed, resulting in lower implicit costs (purchase, maintenance, servicing, energy consumption, etc.
At a time when implicit costs are rising dramatically, Saxo Bank's proposition can help smaller managers immeasurably on the road to becoming the titans of tomorrow.
Adjusted EBT is also closer to economic profit before tax, which is calculated after considering all explicit and implicit costs.
A risk broker's commissions are significantly higher in the US compared to the Europe, reflecting the potential higher global implicit costs.
It was also alleged that the bank hid implicit costs on the swaps.
Note that the above specification treats the implicit costs of borrowing as exogenously determined.