Question

The concept of opportunity cost is an important one in economics. It is essential to understand the distinction between explicit and implicit costs. For this assignment, consider an event at work that you company is considering doing, such as a new product, adding more employees, etc. their opportunity cost of going to school is. Include all implicit and explicit costs of this venture. In addition, analyze the value of this project and how the costs will be short run and the long run.

submit a 4 page essay with 5 references.

Answer 1

Opportunity cost is the value of something when a particular course of action is chosen. Simply put, the opportunity cost is what you must forgo in order to get something. The benefit or value that was given up can refer to decisions in your personal life, in a company, in the economy, in the environment, or on a governmental level. Opportunity cost refers to the loss of potential gain from you choosing one option from a number of alternate options. For every choice you make, there is potential benefit you lost out on by choosing that option.

Opportunity cost is what is given up when a scarce resource is used in a certain way. Thus, by attending college, a student would be giving up the money that would be earned by working at a job full time. Generally, when a student attends college full time, the student delays entry into the workforce on a full-time basis until college is completed.

Explicit costs are out-of-pocket costs, that is, payments that are actually made. Wages that a firm pays its employees or rent that a firm pays for its office are explicit costs. Implicit costs are more subtle, but just as important. They represent the opportunity cost of using resources already owned by the firm. Often for small businesses, they are resources contributed by the owners; for example, working in the business while not getting a formal salary, or using the ground floor of a home as a retail store. Implicit costs also allow for depreciation of goods, materials, and equipment that are necessary for a company to operate.

Costs resulting in an immediate outflow of cash from the business are termed as explicit costs. These costs are incurred during the production process or the regular course of action of the business. Explicit costs are incurred due to the utilization of factors of production such as capital, land, labor etc.

Explicit costs are paid in the form of wages, rest, material, salary, electricity bills, and other overhead miscellaneous expenses. To know more about material, labor and expenses click here.

Explicit costs are easy to recognize and keep track off. They are recorded when they arise and are calculated in terms of cash. Keeping a record of explicit cost proves to be very important as it helps in purposes of calculation of profits, cost controlling, decision making, etc.