Essay on The Cost Of A Business Owner

1529 Words Dec 11th, 2015 null Page
A business owner must know that every resources has an opportunity cost in order to calculate the firm’s economic costs properly. An implicit cost is an opportunity cost that doesn’t need to pay by the owner because a firm owner already own the resources for his firm. However, these resources has their own price. For example if a business owner buys a piece of land for building a house but he determines to use this land to make a bakery, he will face an indirect or implicit cost of this land to his bakery. As a result, he would earn a normal profit or loss at the end of the season, if he would not count the cost of his land as a cost for his bakery. His bakery’s economic costs are both implicit cost and explicit cost. Economic costs are very important to a business which talks about the benefits and losses in money matters. To find the economic costs individual must figure out their businesses’ indirect or implicit cost. In fact, Businesses are at great peril when business owners fail to count the causes of implicit costs.
First of all, there is a perspective of implicit costs when we do not charge the cost of resources directly to the company. The four resources of economics are land, labor, capital, and entrepreneurial ability. The labor of a business owner, which is given to his own industry, can be counted as an implicit cost because in his own industry he does not pay himself for the labor he gives for the industry. If the owner worked somewhere else rather than in his…

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