Production, Total cost including implicit and explicit costs生产，总成本包括显性与隐性成本.docVIP

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Production, Total cost including implicit and explicit costs生产，总成本包括显性与隐性成本.doc

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Production, Total cost including implicit and explicit costs生产，总成本包括显性与隐性成本

Production Costs Total Production cost – Includes the true economic costs of production (The sum of explicit and implicit costs). Economic costs of production not only include accounting costs but also the opportunity costs of producing each unit of output. Accounting costs are the explicit costs that appear on the income statement including variable and fixed costs. The opportunity costs consist of any implicit costs. In order to be profitable a business needs to look at all cost measures. Cost-cutting initiatives may end up harming a business’s future profitability if they are not careful. It is a good idea to base initiatives on eliminating waste or unprofitable activities in light of opportunity cost (Koch). Implicit costs – Do not include direct monetary payments, but are the opportunity costs of giving up the best alternative. These costs are often times hard to measure, because they do not have a direct dollar value. Managers have to rely on resources to make informed decisions on implicit costs. These resources can include the company’s finance, marketing, or legal departments (Das). Example #1: Suppose you left your job as an accounting clerk at a factory with $40,000 salary in order to start up your own deli sub restaurant (Deli-mart). At the end of the first year, you determine the cost of running Deli-Mart to be $30,000 and revenues to equal $180,000. Your implicit cost of starting up Deli-Mart equals $40,000. Your implicit cost is $40,000, which is the amount you gave up in order to start up the deli business. Explicit costs – Are the accounting costs directly paid out-of-pocket (monetary) for the purchase of inputs or the hiring of labor needed for production. Explicit costs of production may include the cost of raw materials, equipment, and wages. Example #2: As stated in the previous example, the costs of running Deli-Mart are $30,000. These costs include food supplies and wages. These are the explicit costs of running Deli-Mart, because they a