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In economics, an implicit cost imposed on a firm includes costs when it foregoes an alternative action but doesn't make a physical payment. Such costs are related to forgone benefits of any single transaction, and occur when a firm:

• Uses its own capital
• Uses its owner's time and/or financial resources

A firm using its own capital is considered an implicit cost because the firm could rent the capital to another firm. Such costs are often referred to as an opportunity cost. This rental income foregone is the firm's opportunity cost of using its own capital, which is also referred to as the implicit rental rate of capital. This implicit rental rate of capital can also be broken down beyond interest forgone. Also included in this implicit cost is what is known as economic depreciation.

Economic profit is equal to total revenues minus both implicit and explicit costs. While accounting profit refers to only total revenues minus explicit costs, economic profit will always account for opportunity costs not included in explicit costs. Seeing this, we see that economic profit will always be lower than or equal to that seen in accounting profit. In other words, the distinction between an economic cost and an accounting cost is essentially one between resource and dollar costs. Dollar cost refers to the explicit dollar outlays made in the process of production (it is the lifeblood of accountants). Economic cost, in contrast, refers to the value of all resources used in the process of production (it is the lifeblood of economists).

If one decides to go to the movies, one's explicit cost includes the ticket, popcorn, and soda. The implicit cost includes the pay one would have earned had one worked during the time required at the movies

• Explicit cost
• Economic profit

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