A firm incurs implicit costs when it uses capital, inventories or owner’s resources. In other words, implicit cost is the opportunity cost associated with a firm’s use of resources that it owns. Therefore the firm has to calculate the total cost of producing tractors and threshers. Besides this, the opportunity cost of producing tractors and threshers must be taken into account. Opportunity cost of producing a commodity (say X) is the amount of the next best alternative that is forgone to produce one additional unit of X. If the opportunity cost of producing thresher is higher, he will produce more tractors as compared to threshers.
Suppose that if the firm benefits from producing a different commodity other than tractors and threshers, then it is always profitable for the firm to produce that third commodity. What will be the alternative production opportunity costs?
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