implicit cost


Also found in: Dictionary, Encyclopedia, Wikipedia.

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 ?
Moreover, unlike mutual funds, ETFs carry the additional implicit costs associated with trading at a premium or discount and the bid-ask spread.
We can estimate the annual implicit cost to taxpayers by dividing the historical taxpayer contributions to the FDIC by its current lifetime.
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.
This refocusing of the material on the entrepreneur will, therefore, help business students enjoy a greater general understanding of the concept of opportunity and implicit costs.
Wed.] dummy variable for last day of maintenance period [c.sub.1] implicit cost prior to 2003 [c.sub.2] implicit cost after 2003 A interval parameter for aggregate shock B interval parameter for bank-specific shock D time trend parameter for aggregate shock E time trend parameter for bank-specific shock F interval parameter for probability of technical problem [bar.R] average reserve balances s variance of noise parameter for daily high funds rate [L.sub.2] implicit reserve target on last day of maintenance period Source: Authors' calculations.
Explicit costs consist primarily of brokers' commissions, while implicit costs include the spread, possible price impacts as a result of a trade, and the opportunity cost associated with not getting to trade at the desired time.
IC = the implicit cost function, increasing in the perceived unreasonableness of CEO compensation, [differential]IC/[differential]($ - RC) > 0, at an increasing rate, [differential]I[C.sup.2]/[differential]($ - RC)2 > 0; and
The implicit cost of the RTC's loss position during each quarter is estimated on an institution-by-institution basis, with adjustments made for the portion of the quarter an institution was held in conservatorship, then aggregated to arrive at the values show on line 3.
Put differently, the new option to use or lease emissions creates what economists call an implicit cost to the firm; it is a new opportunity cost.
Let ||Alpha~.sub.hj~ be the implicit cost of time spent producing |z.sub.j~.
The bank may not wish to incur large marginal implicit cost due to its past borrowing from the Fed.
Instead, I suggest exploiting the existence of the less ambiguous and controversial terms implicit cost and explicit cost.