Widgets R Us uses a variety of different items to produce th

Widgets R Us uses a variety of different items to produce their world-class widgets. For each item listed, place it in the appropriate bin according to whether it would generate an implicit or explicit cost for the firm.

Solution

An implicit cost is the opportunity cost that meand it is a cost which has occurred but is not reported as a separate cost. While, an explicit cost are ones which can be calculated are which required to be payed for.

Based on the above definition we can classify the items given as implicit and explicit costs.

EXplicit costs

Warehouse rented to store inventory.

Water from water utility.

Wages paid to the CEO

Production workers

Packing crates

All of the above costs are explicit as these costs can be calculated and tracked. The firm has to pay for them to use in the production process.

Implicit cost

Factory owned

Cost of fixing widgets under warranty

Currrent value of secretly owned process

These costs are implicit because these costs can not be easily calculates. These costs have incurred but not been reported seperately.