Economic profit is a better measure of profit than accounting profit because it considers opportunity cost and other hidden costs which are ignored by accounting profit (Black, 2003). Economic profit is positive if the value of output is greater than all explicit and implicit…
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A firm such as firm A which uses old technology will incur more costs and earn less revenue.
In measuring economic profit, one-time event is considered as part of the elements of economic profit because a profit is a profit whether recurring or not (Black, 2003). Extraordinary and non-recurring items are taken into consideration.
Money provided by relatives to get the business started is considered as a starting capital which is a cost because there is an opportunity cost of how to use such money. So, they are subtracted from the value of output to get the economic profit.
Off-balance sheet expenses are also treated as costs which are subtracted from the value of outputs because they reduce economic profit. They may not be included in the firm’s balance sheet but they are included as explicit costs in measuring economic
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(Economic Profit Essay Example | Topics and Well Written Essays - 250 Words)
“Economic Profit Essay Example | Topics and Well Written Essays - 250 Words”, n.d. https://studentshare.org/macro-microeconomics/1650295-economic-profit.
Numerous exchange transactions constitute business operations, whereby the value of a commodity is multiplied with each transaction till it reaches the consumer. The goods consumers buy are not in their raw form, instead these have been through numerous refining processes.
Keywords: monopolistic, oligopolistic, competition. The Mechanics of Profit Maximization Answer the following questions to the best of your ability 6) The demand function is Q =100 - . 5 P. The cost function is TC = C =100 + 60 (Q) + (Q) 2: A) Find the MR and MC.
The logic behind the fixed number of firms in the short-run is that this time period is too short to lure new firms enter into the industry, if the industry is making a profit as there are lot of setup costs and capital expenditure that have to be incurred in order to join this industry.
Though the public links corporate goals and values solely to profit maximisation, it is evident from company behaviours and undertakings that financial success and social considerations are not treated as a zero-sum game.
Companies are increasingly attempting to establish explicit statements reflecting their goals to take responsibility of immediate and long-term social and environmental consequences of their decisions.
Many economists consider these payments as vital in attracting new resources and setting up a business. These payments play special part in coordination of these resources. Most of the times these payment perform their function efficiently, but sometimes they do not perform the functions well, when theses resources deem monetary motives as secondary and are working for some other aim for e.g.
Management is the hired hand of shareholders to pursue profit maximization. COMMENT: Some companies prefer to maximize profits but others do not prioritize it. The advantage of maximizing profit thru lessening costs like employee trainings and salary increases is that it will give bigger dividend payouts to stockholders but create possible labour union protests.
Economy profit is the difference between the revenue attained from the opportunity price of the inputs utilized and the sale of an output. In computing economic profit, opportunity costs are subtracted from revenues attained.