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Implicit Costs: Impact on Value of Economic Profit

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In what ways do implicit costs actually understate the value of economic profits, and what are some examples of implicit costs that business owners might have to consider?

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Solution Summary

The solution clearly explains the concept of Implicit Cost and how implicit costs actually understate the value of economic profits with examples.

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Before we actually answer the question lets see what an implicit cost actually is and what is represents.
Implicit Cost:

In economics, an implicit cost, is the opportunity cost equal to what a firm must give up in order to use factors which it neither purchases nor hires. It is the opposite of an explicit cost, which is borne directly.

Implicit cost is also called an imputed cost, implied cost, or notional cost.

In other words, an implicit cost is any cost ...

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