Implicit cost

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Updated: Aug 20, 2021

The opportunity cost of an action that does not directly involve monetary payment. The choice of an action involves the direct costs for which payments are made plus the implicit cost of forgoing the benefits of an action that could have been chosen. For example, when a firm produces using capital that it owns the implicit cost is the income it could have received by renting that capital to another firm. Implicit costs need to be taken into account when determining ‘economic profit.

Reference: Oxford Press Dictonary of Economics, 5th edt.



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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.