01:220:102 Lecture Notes - Lecture 9: Marginal Cost, Marginal Utility, Opportunity Cost

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2 Oct 2017

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Explicit cost: a cost that requires an outlay of money. Implicit cost: does not require an outlay of money. It is measured by the value, in dollar terms, of benefits that are forgone. Total opportunity cost: total explicit cost + total implicit cost. Accounting profit: equal to revenue minus explicit cost. Economic profit: equal to revenue minus the opportunity cost of resources used. Economic profit is usually less than the accounting profit because of the added implicit cost. When the word profit is used it refers to economic profit in economics. Capital: the total value of assets owned by an individual or firm physical assets plus financial assets. Economists like to distinguish between financial assets, such as cash, stocks, and bonds, and physical assets, such as buildings, equipment, tools, and inventory. Implicit cost of capital: the opportunity cost of the use of one"s own capital the income earned if the capital had been employed in its next best alternative use.

Related Questions

Accounting profit is equal to total revenue minus the explicit cost of producing goods and services while economic profit is the difference of total revenue minus the sum of both explicit and implicit costs. Therefore, the economic profit

1. is always at least as large as accounting profit if the implicit cost is greater than zero.

2. is always less than accounting profit if the implicit cost is greater than zero.

3. will always exceed accounting profit.

4. will always equal to accounting profit.

orchidrabbit535

5. Economic profit is equal to

a. total revenue minus the explicit cost of producing goods and services.

b. total revenue minus the opportunity cost of producing goods and services.

c. total revenue minus the accounting cost of producing goods and services.

d. average revenue minus the average cost of producing the last unit of a good or service.

6. Accounting profit is equal to

a. marginal revenue minus marginal cost.

b. total revenue minus the explicit cost of producing goods and services.

c. total revenue minus the opportunity cost of producing goods and services.

d. average revenue minus the average cost of producing the last unit of a good or service.

7. Economic profit

a. will never exceed the accounting profit.

b. is most often equal to accounting profit

c. is always at least as large as accounting profit.

d. is a less complete measure of profitability than accounting profit

8. Which of the following expressions is correct?

a. accounting profit = total revenue - explicit costs

b. economic profit = total revenue - implicit costs

c. economic profit = total revenue - explicit costs

d. Both a and b are correct

Scenario 13-2:

Zach took $400,000 out of the bank and used it to start his new cookie business. The bank account pays 3% interest per year. During the first year of his business, Zach sold 6,000 boxes of cookies for $2.50. Also during the first year, the cookie business incurred costs that required outlays of money amounting to $9,000.

9. Zach's accounting profit for the year was

10. Zach's economic profit for the year was

Scenario 14-1:

As part of an estate settlement, Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business; her salary at Lucky.Com Inc. was $75,000 per

11. At the end of the first year of operating her new business, Mary's accountant reported an accounting profit of $150,000. What was Mary's economic profit?

During a year of operation, a firm collects $175,000 in revenue and spends $80,000 on raw materials, labor expenses, utilities, and rent. The owners of the firm have provided $500,000 of their own money to the firm instead of investing the money and earning a 14 percent annual rate of return.

a). The explicit costs of the firm are $. The implicit costs are $. The total economic cost is $.

b). The firm's economic profit is $

c). The firm's accounting profit is $

d). If the owners could earn 20 percent annually on the money they have invested in the firm, the economic profit of the firm would be______ (when revenue is $175,000).

earnsacquire or deserve by one's efforts or actionsMore (Definitions, Synonyms, Translation)

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01:220:102 Lecture Notes - Lecture 9: Marginal Cost, Marginal Utility, Opportunity Cost

01:220:102 Full Course Notes

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