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

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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…
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Production, Costs, and Profits
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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. ...
Maquiladoras: Impact on Texas Border Cities” apply the marginal decision rule to the problem of choosing the mix of factors or production (capital intensive vs. labor intensive methods of production)? How do maquiladoras benefit the U.S. economy In making a marginal decision, let us not forget that the firm always seeks to produce products at the lowest cost as possible. In this context, the maquiladora should decide what mix of capital or labor it should use in its operations. As an example, the maquiladora may think of spending an additional $1 for capital and $1 less for labor. In considering marginal decisions, the rule says that “a firm will shift spending among factors as long as the marginal benefit of such a shift exceeds the marginal cost”(web.books.com). The equation that explains marginal decision for maquiladora is that if intensive capital and labor intensive production are of equal benefit to the firm, then it will choose the cheaper alternative. If however, the two choices are of the same price, the choice is the one that will provide the higher benefit. The maquiladoras in Mexico arrived at a marginal decision of using both the capital and labor intensive mix factors of production (web.books.com). The maquiladoras used it both ways because they employed the capital intensive process of production in the United States and then shipped the unfinished products to Mexico for final processing. For example, many U.S. companies produce cloth through high speed processes then send it to Mexico for final finishing of workers using ordinary sewing machine. Plastic injection moulding requires highly skilled labor and has to be done in U.S. It is later sent back to Mexico for incorporation in cars and computers. The benefits of maquiladora to U.S. Most ...Download file to see next pagesRead More
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