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Explicit and Implicit Costs on Firms in an Efficient Informational Environment
Pages 10 (2510 words)
An Explicit cost is the familiar as money cost as it is paid directly in money. Explicit costs occur when a firm pays for its factors of production when it uses those for producing its products and services. So an Explicit cost is a business expense that is transparent that can be easily identified such as wage, rent and materials.
Implicit costs are costs that are not directly paid for but measured in units of money. These costs are the costs of non purchased inputs which are not purchased in a market transaction but they have cash value. Implicit costs occur when a firm uses its capital, inventories or owner's resources. Goodwill is also a good example of implicit cost.
The term of efficiency assumes an informational dimension here, which refers to productive efficiency that it high lights the development of informationally efficient finncial markets.In fact, these markets not only consist of the usual attributes of financial market- notably a large number of investors who have a interst of effective access in to the rich necessary information, but also the important additional assets that have ending points of well defined certain value. It is the most important question faced by economists todays to what extent firms incorporate their environmental information for achieving market efficiency. ...
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