Production and cost — Economics STD 11 Commerce — Question

Cost in economics refers to the sum of all the direct and indirect expenditure on inputs and some minimum profit (normal profit). The direct expenditure means expenses incurred on actual purchase or hiring of inputs such as wages and salaries paid to labour, payments for raw materials, payments for the purchase of machinery and equipment etc. It is called 'explicit cost'. The indirect expenditure refers to the estimated value of inputs provided by the owners/firms. The owner may own certain factor services which he may use in his own business. For example, the owner may contribute his own land, his own capital and may provide managerial services etc. It is called 'implicit cost'. Minimum profit (or called normal profit) refers to the amount of profit which a producer must get in the long run to continue to produce the given good. It is a part of cost of production. Thus, cost in economics consists of these components:

1. Explicit cost.
2. Implicit cost.
3. Minimum profit (or normal profit).