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# Production, Costs, and Profits - Admission/Application Essay Example

Summary
Production costs and profit 1. Give a brief summary of economic costs (i.e. how are they different from accounting costs). In the short-run, why might a firm still operate even when there is a loss. Economists and accountants differ in their treatment of costs…

## Extract of sample "Production, Costs, and Profits"

Download file to see previous pages Explicit costs are those incurred in the operation of the business and recorded by the bookkeeper in the books of account. Implicit costs are foregone opportunity when one chooses another option. Let us take a simple assumption to prove the difference of economic and accounting costs. When you are employed and you want to go into business, you give up your job that gives you an annual salary of \$25,000. You also give up the apartment earnings of \$12,000 a year and instead use it in the beauty shop business and an investment that earns for you \$5,000 a year. A projection of your accounting costs for one year of operation show the following: Total revenue \$145,000.00 Cost of sales \$75,000.00 Employees wages 20,000.00 Cost of utilities 5,000.00 Taxes 6,000.00 Advertising 7,000.00 Total explicit costs 113,000.00 Net Profit 32,000.00 It would seem here that the company is profitable, but we are forgetting the opportunity cost or the implicit side of the economic cost. Remember, you lost income in getting into the beauty shop business which are Salary \$25,000 Rent 12,000 Interest on investment 5,000 Total implicit cost P42,000 Economic loss \$10,000 As shown, the operation is not economically profitable because the profit does not consider the implicit costs of the owner. ...
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