Explicit Costs
Definition
Explicit costs are monetary expenses incurred by a firm in its production process. These include payments for wages, rent, raw materials, utilities, etc.
Analogy
Think of explicit costs as the bills you have to pay each month. Just like you need to spend money on rent, groceries, and other necessities, firms also have to spend money on various inputs required for production.
Related terms
Economic Costs: Economic costs encompass both explicit and implicit costs and represent the total opportunity cost of producing a good or service.
Accounting Profit: Accounting profit is the difference between total revenue and explicit costs. It only considers explicit monetary expenses and does not take into account implicit opportunity costs.
Variable Costs: Variable costs are expenses that change with the level of output produced by a firm. Examples include labor wages or raw material expenses.
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