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Differences Between Implicit and Explicit Costs

What are Implicit Costs?

What are Explicit Costs?

What Are the Differences Between Implicit and Explicit Costs?

Apart from the difference highlighted above, here are the other primary implicit and explicit costs differences:


Implicit Cost

Explicit Cost

Tax benefit

These intangible costs cannot be used for claiming tax deductions.

Businesses can claim these expenses to reduce tax liability.


Implicit costs are subjectively measured. There is no method or tool for computing their value.

Entities measure this in an objective manner.

Profit calculation

One can compute only the economic profit of an entity by using implicit costs.

One can compute both the accounting and economic profits by considering these costs.


The most basic or fundamental example is interest that a company is foregoing on the capital investment.

Examples include rent on company premises or wages paid to employees.

Other names

Imputed costs.

Out-of-pocket expenditures.

A business bears an explicit cost directly in means of production. On the other hand, entities bear implicit costs indirectly. It is the loss of prospective income that a company could have earned. This detailed guide on the difference between implicit and explicit costs will help readers understand the operating and computation of these costs.

FAQs About Implicit vs Explicit