The payments that are made by the entrepreneur for factor services and inputs used in production are called explicit costs. Thus wages, rent and interest payments made by the entrepreneur as well as the prices paid for raw material, etc. are all explicit costs.
Implicit costs, on the other hand, means reward for those inputs and services that has not actually been paid for because these inputs and services are provided by the entrepreneur himself. However, form economic point of view, the entrepreneur must be compensated for the supply of his own inputs and factor services. The payment that is assigned for these inputs and services (though such payment is not actually made) is called implicit cost. Following our earlier discussion on accounting costs and economic costs include both explicit as well as implicit cost.
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