Productivity Costs in Economic Evaluations

Question: Discuss about the Productivity Costs in Economic Evaluations. Answer: Introduction: Opportunity cost is described as an advantage that an individual could have received however; they give it up in order to take another course of action. According to an economists, the opportunity cost of a resource is the value of the next highest-valued choice use of that particular resource (Pereiro, 2015). The term opportunity in opportunity cost is actually unnecessary. The essay provides an overview about the concept of opportunity cost in economics and the role it plays to provide a distinction between explicit and implicit cost. The concept of opportunity cost leads with the concept of scarcity. It indicates the value of the subsequently best opportunity. Explicit costs are the costs that necessitate a money payment, on the other hand, implicit costs do not necessitate a money payment and opportunity cost comprises both implicit and explicit costs. Opportunity costs are more than explicit costs as opportunity costs also comprise implicit costs. The concept of opportunity cost relies on the net proceed generated (Krol Brouwer, 2014). The most common example of opportunity cost includes the fact that if a player attends a basketball training rather than going for a vacation, the opportunity was the vacation. Similarly, the opportunity cost of going for a vacation rather than investing the money on a new car is not getting a new car. Opportunity cost plays a decisive role in analyzing the capital structure of a business. Opportunity cost is calculated by subtracting the return of selected option from the retur n of most profitable option (Zane, DiRenzo DeCarolis, 2014). Opportunity cost is imperative to determine the comparative prices of commodities. In other words, if a particular factor is used to produce one table or four chairs; in that case, the price of one table will be inclined to be four tines equal to that of one chair. The concept of opportunity cost is also required to fix the price of a factor. Implicit costs comprise the attributed value of the resources and services of the entrepreneur. This is mostly because; implicit costs are self-owned and self-employed assets. Explicit includes wages, salaries as well as costs of those raw materials that are used in the production. Implicit costs are however; ignored while calculating the expenses of production. The explicit costs are recorded in the account books of a firm. Interest payments on borrowed funds as well as utility expenses are part of explicit costs (Studer Knecht, 2016). An explicit cost describes direct payments that are made to others in the course of operating a business. Explicit costs are used to provide an apparent concept of the profit and performance of the company. Explicit costs are mostly used to compute opportunity costs. It is calculated by adding up the explicit and implicit costs of not performing a movement. The acquisition of a vehicle by a trade indicates an explicit cost as the equipment is essentially purchased. Explicit costs have a paper path that provides documentation of audit. Explicit costs are also regarded as out-of-pocket cost that refers to payments that are essentially made. Explicit costs mostly include expenses of travel as well as cost of a hotel room (Kurzban et al., 2013). An implicit cost is a cost that already takes place however; it is not inevitably illustrated as a separate expense. Implicit cost illustrates an opportunity cost that takes place when a company distributes internal resources towards a project devoid of any explicit recompense for the utilization of resources. In other words, when a company distributes its resources, it always gives up the capacity to earn money off the use of the resources elsewhere. Implicit costs are not perceptible in a financial system. Implicit costs are described as the opportunity costs of factors of production that a producer already possesses and it also indicates a tradeoff. A paper manufacture firm may possess a grove of trees and the implicit cost of that natural resource is the impending market price the firm could receive. An implicit cost is the largest advantage that could have resulted from the usage of the funds as they are implicit costs are more restrained (Marglin, 2014). It can be thus concluded that opportunity cost holds an imperative place in the theory of economics. The production of a particular commodity is possible at the expense of another commodity. Implicit cost is mostly associated with trade-off of an action. It is also related to explicit costs that in turn indicates the actual cost of an activity. It can also be concluded that implicit costs are unrecognized costs that are realized by firms when it makes use of assets as well as resources for one project over another. 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