Essay On Implicit Cost

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1. Explain the difference between implicit and explicit costs. Give two examples of when an explicit cost is different from an implicit cost. Explicit Costs cover all expenses connected with production and the daily operation of a business. Explicit Costs are the costs being released from the business in order to keep it functional. These costs include factors of production such as land, labor, capital, etc. These would be categorized as rent, salary, material, wages, and other expenses like electricity, stationery, postage, and much more. Implicit costs are costs which businesses avoid when they go for an alternative course of action. They hardly involve any influx of cash from the business. It is the value of sacrifice made by the entity at the time of exercising some other action. Here is an example: Nikki is running an airport business and…show more content…
Finally, explain the difference between economies and diseconomies of scale. Provide examples of when an actual firm might benefit from economies of scale or be harmed by diseconomies of scale. Economies of scale are elements that cause the average cost of producing an item to fall as the volume of its output increases. Here is an example, it cost $7,000 to produce 200 to produce of a laptops but only $2,000 to produce 1,000 laptops. The average cost in this case has fallen from $70 to $2 a laptop because I was able to buy more materials in bulk when making 1,000 laptops. My cost for materials dropped, thus creating an economy of scale. Diseconomies of scale are the forces that cause larger firms and governments to produce goods and services at increased per unit costs. Diseconomies of scale is a negative occurrence that can weigh down a company. This happens when owners, like Nikki and her airport, become less proficient at running their businesses as their companies begin to grow. In other words, diseconomies of scale occur when a company begins to experience breakdowns that cause the company to become less
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