Chapter 4: Market Structures

Question 1

Explicit Costs

Answer 1

Explicit costs are direct payments to factors of production (FOP) not owned by the firm. It involves actual monetary transaction.

Question 2

Implicit Costs

Answer 2

Implicit costs are those that do not involve a direct monetary payment to a third party but forces the firm to incur opportunity costs. This costs arise when the firm employs factors of production (FOP) already owned by it.