Question

Munif wants to expand his business and plans to use the 5 acre property he owns and rents to a local cattle rancher for $5000/year. He'll use that land and then build a warehouse and office building for $2 million. What are Munif's explicit costs?

Answer 1

Answer:

Explicit cost = $2,000,000

Explanation:

Explicit costs

Explicit costs are out-of-pocket expenditures incurred for the purpose of a project or business, They represent  cash outflow expenses which actually involve the payment for cash. For example, the  $2 million cost of building the warehouse and office.

Implicit costs

On the other hand, implicit costs are the value of the benefit sacrificed in favor of a decision. They are known as opportunity cost. For example, the $5000 per year which Munif would forgo if he expands the business.