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Principles of Microeconomics: Explicit Costs - Dissertation Example

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The research paper “Principles of Microeconomics: Explicit Costs” seeks to evaluate money payments a firm makes to outside suppliers of resources while implicit costs are the opportunity costs associated with a firm's use of resources it owns…
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Principles of Microeconomics: Explicit Costs
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Download file to see previous pages Explicit costs involve the outflow of funds while implicit costs are opportunity costs. Explicit costs are regarded as actual costs and included in accounting, while implicit costs are not regarded as costs, although they are considered to be an integral part of a firm’s cost of doing business (Duffy 1993). The explicit cost of going to a university includes tuition fees, accommodation cost, etc while time spent in studying at the university is the biggest implicit cost of going to university as it could have been invested elsewhere such as working. Economists classify normal profits as costs because it is the opportunity cost of another best alternative forgone i.e., working for the salary, or setting up another business. Furthermore, it is the minimum level of profits required to be earned by a firm in order to avoid loss and continue operating the firm. Economic profits are not costs of production because costs of production must include monetary rewards (cost) paid for the factors of production, while economic profits include opportunity costs or notional expenses along with the actual monetary expenses (i.e., economic profits = total revenues – explicit costs – implicit costs). Hence accounting profits rather than economic profits can be considered as a cost of production (McConnell et al, 2004).
The basic difference between a competitive firm and a single monopoly firm is the ability of the single monopoly firm to influence the price of its output. A competitive firm is comparatively smaller with regard to the market in which it functions and hence the price of its output is influenced by the market forces. While in case of a single monopoly firm, it has the liberty to alter either the price or output since it is the sole producer of the goods in the market (Gregory 1998).  ...Download file to see next pagesRead More
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