Question

Amit withdrew ₹ 50,000 from his savings to invest in his own business. He bought a Xerox machine for ₹ 30,000 for his office the same day. Identify the explicit cost and the implicit cost in the above situation.

Answer 1

Explicit Cost: ₹ 30,000 spent on purchasing the Xerox machine, as it involves an actual cash outflow for the business.

Implicit Cost: ₹ 50,000 withdrawn from Amit’s savings and invested in the business, as it represents the opportunity cost of using his own funds instead of earning interest elsewhere.