Opportunity Cost

Opportunity cost represents lost option of doing something else. If something could not be done simultaneously like using a limited capital to either spend on building another store or to use it for advertising. Both of these should produce a much bigger revenue but only the best possible alternative can be done. If they chose to build a new store instead of boosting awareness through ads, the second option is a lost opportunity that might have produced a better result.

Explicit Cost are physical costs where the company uses money to produce their products like raw materials, rent, machinery and equipment. Accountants use explicit costs to determine the company's profit.

Implicit Cost is where time and effort is being diverted into something else that might represent a wasted opportunity. Economists include implicit cost together with explicit cost to determine economic profit. Depreciation is an example of implicit cost where the market value of capital changed because of an economic event, where it could have been put into more use when the value was still high.

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