Implicit costs:

Implicit costs arise as a result of the opportunity cost doctrine. A proprietor of a firm may invest his own labour hours and capital in his/her business.

The services rendered by these inputs could have generated salary and interest if they were hired to another firm. Consider a teacher who stops teaching and establishes his own "sachet water" business. By stopping his teaching career and offering his labour to manage the business he forfeits his salary from teaching. In deciding on the private costs of production, such inputs provided by the proprietor ought to be valued at their market prices and taken as part of production costs.

Thus, a firm's total cost of production is made up of the sum of the explicit and implicit costs incurred in the course of production.