Understanding the concept of economic cost will help business owners and managers to visualise the cost of a decision, and to differentiate between variable costs and fixed costs.
Economic Cost Definition
Economic cost is a broader concept than that of accounting cost. Economic cost includes not only monetary transactions but also what economists term opportunity costs (Samuelson, 1980). Accountants and economists measure costs following different methodologies while economists include in their analysis all opportunity costs, accountants only measure the explicit costs (Mankiw, 2011). Economic costs can be differentiated between variable costs (VC) and fixed costs (FC).
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Economic Cost References (4 of up to 20) *
- Besanko, D., Dranove, D., Shanley, M., Schaefer, S. (2009) Economics of Strategy. John Wiley and Sons.
- Conway, E. (2009) 50 Economics Ideas You Really Need to Know. Quercus.
- Dougherty, C. (2011) Economic Cost Will Be Less Than Feared. Wall Street Journal, Aug 28. Available at:
[Accessed on 1 November 2011].
- Frank, R.H. (2010) Microeconomics and Behavior. McGraw-Hill Irwin.
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