Why does opportunity cost include implicit costs?
1 Answer
We include the implicit cost because an entity incur a cost simply by choosing opportunity 1 as opposed of opportunity 2. By doing so she is liable to intangible costs that are not easily accounted for.
Explanation:
Opportunity cost is the cost associated with a decision that includes both the explicit and implicit costs. We include the implicit cost because an entity incur a cost simply by choosing opportunity 1 as opposed of opportunity 2. By doing so she is liable to intangible costs that are not easily accounted for. For example, the time and effort that an owner puts into the maintenance of the company| company rather than working on expansion. To be complete the entity obviously incur an explicit costs. A cost that represent clear, obvious outflows from a business that reduce its bottom-line profitability. This contrasts with less-tangible expenses such as goodwill amortization, which are not as clear cut regarding their effects on a business's bottom-line value.
