Concepts of Cost

Lesson

Part 1 — the kinds of cost an economist counts, opportunity cost, and the total cost curves of the short run.

In this lesson you will

Part 1 at a glance

Compare

Explicit and implicit costs

Explicit costs are actual payments to outsiders: wages, raw materials, rent paid to a landlord.

Implicit costs are the imputed value of the owner's own factors: her own shop, savings and time.

Table comparing explicit and implicit costs: explicit costs are payments to outsiders and appear in the books; implicit costs are the imputed value of the owner's own factors and are counted by economists but not by accountants
	Explicit cost	Implicit cost
Meaning	Actual payment to outsiders	Imputed value of the owner's own factors
Imagined Bhopal tailor	Cloth, thread, assistant's wage	Rent of her own shop, her forgone salary
In the account books?	Yes	No
Counted by economists?	Yes	Yes

Check your understanding

For an economist judging an imagined Indore sweet shop, economic cost equals…

Multiple choice1 mark

For an economist judging an imagined Indore sweet shop, the economic cost of running it equals