Question
State the distinction between explicit cost and implicit cost. Give an example of each.
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S No.
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Explicit Cost
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Basis
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Implicit Cost
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1.
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It refers to the actual money expenditure of a firm on purchasing goods or hiring factor services and non-factor inputs (like raw material, electricity, fuel etc.)
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Meaning
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Implicit cost is the imputed or estimated value of inputs supplied by the owner of the firm himself.
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2.
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It is explicitly shown in the firm's book of accounts and is I thus. called accounting cost.
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Account Book
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It does not enter in the firm's book of accounts.
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3.
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It is payment concept.
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Concept
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It is a receipt concept, i.e., the payments are received by producer for self-supplied services.
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4.
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Wages, rent, interest, insurance, etc.
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Examples
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Wages of self-supplied labour, rent for self-owned premises, etc.
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Output (Units)
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Total Variavle Cost (TVC) (₹)
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Average Variable Cost (AVC) (₹)
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Marginal Cost (MC) (₹)
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1
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__
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12
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__
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2
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20
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__
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__
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3
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__
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10
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10
|
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4
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40
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__
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__
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The following data shows the number of cars manufactured by Maruti Ltd, Tata Motors and Hyundai in the year 2015-16. Represent it with the help of a piediagram.
Production of Cars (in Rs.)
Maruti Limited | 15,75,000 |
Tata Motors | 7,25,000 |
Hyundai | 5,50,000 |
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Price (₹)
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Output (units)
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Total Revenue (₹)
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Marginal Revenue (₹)
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$10$
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$1$
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-
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-
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-
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$2$
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$14$
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-
|
|
-
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$3$
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-
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$1$
|
|
-
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$4$
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$12$
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-
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