yes, depreciation is an implicit cost. but this implicit cost is added to total costs in calculating accounting profits.
Opportunity Cost
the opportunity cost or value of the best by a business
it is easier for economists to measure "cost" than "opportunity cost"(because people's tastes are different and changeable)
First of all, we need to understand what is explicit cost and implicit cost. Explicit cost mean real expenses, while implicit cost mean opportunity cost. In accounting profit, we only minus explicit cost, while in economic profit we minus explicit cost and implicit cost. therefore accounting profit is higher than economic profit.
yes, depreciation is an implicit cost. but this implicit cost is added to total costs in calculating accounting profits.
Opportunity Cost
Explicit cost and Implicit cost are the two dimensions of cost What role does cost play in financial decisions?
the opportunity cost or value of the best by a business
There is almost an implicit assumption that tutors know about these things.
it is easier for economists to measure "cost" than "opportunity cost"(because people's tastes are different and changeable)
First of all, we need to understand what is explicit cost and implicit cost. Explicit cost mean real expenses, while implicit cost mean opportunity cost. In accounting profit, we only minus explicit cost, while in economic profit we minus explicit cost and implicit cost. therefore accounting profit is higher than economic profit.
opportunity cost
Economists always include both implicit and explicit costs in the calculation of their profits while accountants only cater for explicit costs when calculating profits.So due to the inclusion of opportunity costs, which can be termed implicit costs, economists' profits will always be lower than accountants' profits.Hence an accountant may say they are making profits while it is different from an economist's view.
Economists call opportunity cost the next best alternative that has been given up. This is the cost of forgoing something and picking an alternative like using college fees to start a business.
According to the "Bible" for accounting terminology, Barron's Dictionary of Accounting Terms, 5th Edition, they are the same. In fact, when you look up implicit cost, it refers you to imputed cost. This is the definition of imputed cost: "A cost that is implied but not reflected in the financial reports of the firm: also called implicit cost. Imputed costs consist of opportunity costs of time and capital that the manage has invested in producing the given quantity of production and the opportunity costs of making a particular choice among the alternatives being considered."
Economists say that competitive markets are efficient because when there is competition prices are lower. The more available an item, the less it will cost the consumer.