Distinguish between accounting costs and economic costs.

The Economic
cost is the monetary value of all resources employed in the course of business. It also refers
to the opportunity cost of the inputs used in the enterprise. For example, a business that
operates from a building it owns forfeits the rent that it would have otherwise received if it
rented out the building. In this case, the opportunity cost is the rent forfeited due to
business functions. Economic costs also focus predominantly on implicit costs. Implicit costs
are costs that the business incurs from the use of owned resources. A monetary value for the
resources can be determined, but the resources are not paid for in monetary terms.

Accounting costs, on the other hand, are based on explicit costs incurred by the
business. Explicit costs are costs incurred in normal market transactions. For instance, wages
paid to workers are an explicit cost. Explicit costs are incurred in the purchase of productive
resources.

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