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Principle of Microeconomics_Cost
Q What are the differences between economic and accounting concepts of cost? How would you manage the costs associated with a value-creation activity? How do costs of operations relate to the strategy of the organization?
As the names suggest, the economic cost can be considered as the cost of an organization from the outlook of an economist, whereas the accounting cost can be considered as the cost from the outlook of an accountant. The accounting cost includes only the explicit cost. The explicit cost is the cost paid only through the money. The economic cost considers both the explicit cost and the implicit cost. The implicit cost can be defined as the cost with no financial tag attached to it (Marquis, n.d.). The rents, salaries and wages are the part of the explicit cost, whereas the rent of the owner’s place and interest of the capital can be considered as the implicit cost.
