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What Does User Cost Stand For?
User Cost means a decrease in the worth of a capital asset or machine due to its continued use. User cost, compared to Depreciation, is not incurred in case the item cannot be used or just sits idle. It is just a reduction in the value of the item from its use.
The item in question can be a piece of machinery or any other fixed capital asset, like raw materials. The cost that is incurred from the use of the asset is equivalent to the loss in its value due to usage.
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What is the Need for User Cost?
User Cost is important in Microeconomics. In terms of business capital, it is the price that you have to pay to get a single unit of capital services. The user cost of capital equals the unit cost for capital asset usage for a specific period, in other words – the cost of getting or obtaining a capital service unit. The user cost, when it comes to capital, is also referred to by various other names such as “Capital Service Price” or capital good’s “Rental Price.”
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