Question

Using the concept of implicit costs, explain how they affect the economic costs of attending college? Or starting your own business?

Answer 1

Answer

Implicit cost means the cost occurs but we don't have to pay for that cost. It is an opportunity cost, do not requires cash outlay. Where the other side there is explicit cost which requires cash outlay that means the cost we paid in cash.

Economists considers the total cost as implicit as well as explicit cost. But accountant only considers the explicit cost.

Affect of attending college?

Here one person can attempt only one thing at a time. He can not do both the work at a time. So whether person can go to college or he can earn from somewhere else like doing job. So the cost of quiting job for college is called implicit cost. But the coat of buying books for study is explicit cost.

Example: suppose person A was doing job in ABC company with the salary of $10000. Now he decides that he want to study so he have to left that job. So when he left the job he can not earn that $10000 that amount of salary is implicit cost for that person is.

Or starting your own business?

Same as we discussed above, if he left the study for the starting own business he can not study. So here the opportunity cost is knowledge.