Implicit cost Definition
In economics, an implicit cost imposed on a firm includes costs when it foregoes an alternative action but doesn't make a physical payment. Such costs are related to forgone benefits of any single transaction, and occur when a firm:
- Uses its own capital
- Uses its owner's time and/or financial resources
A firm using its own capital is considered an implicit cost because the firm could rent the capital to another firm. Such costs are often referred to as an opportunity cost. This rental income foregone is the firm's opportunity cost of using its own capital, which is also referred to as the implicit rental rate of capital. This implicit rental rate of capital can also be broken down beyond interest forgone. Also included in this implicit cost is what is know as economic depreciation.