question_answer

A farmer takes a farm on rent and carries on farming with the help of family members. Identify explicit and implicit costs from this information. Explain.

Answer:

(i) In the given example, the farmer carries on farming with the help of family members. If these members had worked elsewhere they would have earned wages.

Therefore, the imputed expenditure incurred on the wages of family members is implicit cost.

(ii) The farmer takes the farm on rent. Therefore, the expenditure incurred on rent (input) is explicit cost.