Question

1. Explain why economic costs include both explicit costs and implicit costs.

2. Explain the concept of opportunity cost as related to the doctor in the Khan Academy video who gave up his profession to open a business.

3. What other factors do you think the doctor may have considered when he decided to leave his profession to open a business?

Answer 1

1) Explicit costs are the costs which are revealed and can be expressed. On the other side, Implicit costs are the costs which are present but not obvious that is the opportunity cost

The economic costs of producing goods or services using a resource are the value or worth that the resource would have had in its best alternative use. Economic cost includes both explicit and implicit cost.

Individuals consider economic profit instead of accounting profit and decide to continue the production or not. As economic profit considers economic cost which includes the implicit cost. But accounting profit only considers accounting cost. If there is some profit using only explicit cost, but there may be loss using implicit cost and explicit cost both( that is the economic cost).

So economic costs include both explicit costs and implicit costs.