Money Cost

Expenditure incurred by the firm in terms of money on hiring various factors of production to produce a given output is known as money cost. It is also called nominal cost of production. It includes wages and salaries paid in terms of money, cost of raw materials, power and fuel charges, rent of factory premises, interest charges on borrowed funds, power and fuel charges, rent of factory premises, interest charges on borrowed funds, insurance premium, taxes like excise duties, license fees, cost of transport etc. Thus money cost is the total monetary outlay of the firm for producing a given output.

The above list of items included in money cost is an explicit payment made by the firm. The firm. These are recorded expenditures during the process of production. It is also known as accounting cost or explicit cost as these costs from into accountant’ register. Gross profit calculated by deducting accounting cost from the total revenue.

In addition to the explicit money cost, economists are interested in another type of cost called implicit cost. Implicit costs are the cost of entrepreneurs own capital invested in business, wages of his management etc. In other words, the entrepreneur may have employed his own resources in the production process for which no formal payments are made and hence these costs do not find their way into the account’s register. but economists consider these costs to be bona fide costs. These costs are calculated on their imputed values. For example the entrepreneur may have his own land employed in the production process for which no formal payment is made to the entrepreneur. But if the producer had rented his land to somebody, he would have earned rent at the market determined rate. This is called imputed rent. Thus implicit cost is the cost of entrepreneur’s self-owned and self-employed resources. Economic cost is the sum of explicit cost (accounting cost) and implicit cost.