Explicit Cost

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Definition of 'Explicit Cost'

Explicit costs are the direct costs of doing business. They are the costs that can be easily identified and measured. Examples of explicit costs include rent, salaries, and utilities.

Implicit costs are the indirect costs of doing business. They are the costs that are not directly related to the production of goods or services, but are still necessary for the business to operate. Examples of implicit costs include the cost of capital and the cost of managerial time.

Explicit costs are easier to manage than implicit costs because they are more easily identified and measured. However, implicit costs can still have a significant impact on the profitability of a business. For example, the cost of capital can be a significant implicit cost for a business that is heavily reliant on debt financing.

It is important for businesses to understand both their explicit and implicit costs in order to make informed decisions about their operations. By understanding the full cost of doing business, businesses can make better decisions about pricing, production, and other strategic decisions.

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