- Opportunity costs

Kursangebot | | Opportunity costs

Opportunity costs


Instead of buying something, we could have spent the same amount of money on something else. This is  the essence of opportunity cost. There are two kinds of opportunity cost:

  • explicit costs
  • implicit costs

Explicit costs

Explicit costs are those that are paid in money.

Implicit costs

Implicit costs are not paid in money. They occur when a company  uses an asset instead of renting, selling, or lending it. Examples of implicit costs include

  • Economic depreciation
  • Forgone interest
  • Normal profit

Economic depreciation is the changing market value of capital measured over a given period. Normal profit is the return that an entrepreneur could earn on average.


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Susan runs a business. She could earn $30,000 a year if she was employed at Todo Ltd.

Therefore, her normal profit is $30,000. If she wants to compute the cost of her own business, she has to keep in mind this amount – the normal profit – as part of the implicit costs.