Private Cost

Definition: The Private Cost is the cost related to the working of the firm and is used in the cost-benefit analysis of the business decisions. These costs are borne by the firm itself.

The private cost is the actual cost incurred in performing the day to day operations of the business, such as the cost involved in the production and consumption of the product. For a firm, all the actual costs incurred, both implicit (depreciation, interest, insurance, etc.) and explicit (raw materials, wage, rent, salaries, etc.) are private costs.

For example, In the case of an FMCG company, the private cost will include, the cost incurred in transporting finished goods from the factory to the consumer, the cost of labor engaged in direct production, packaging cost, advertising cost, etc. All these costs are internal costs of the firm and are incorporated in the firm’s total cost of production.

The private cost incurred by either an individual or a firm yields private benefits for each. The private benefit is the reward an individual or a firm gets in return of goods and services. In the above example, the private benefit is the revenue generated by the FMCG firm from the sale of its products.

Leave a Reply

Your email address will not be published. Required fields are marked *

Shares