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Business and Economics - Essay Example

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Distinguish between explicit and implicit costs, giving examples of each. What are the explicit and implicit costs of going to university Why does the economist classify normal profits as a cost Are economic profits a cost of production
In the field of economics, there are major classifications of costs; two of these are explicit and implicit costs…
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Download file to see previous pages Basically, implicit costs are associated with the relinquished gains of any transaction. In its simplest form, an implicit cost takes place when the person misses out on satisfaction in search of an activity and is not compensated by money or any another form of fee; it starts and concludes with the act of foregoing the gains and satisfaction (McConnel and Brue 392-393).
Another good illustration is when one decides to go to a university as a full-time student instead of working on a $20,000 job, this meant giving up earnings of $20,000. The potential earning being "sacrificed" is the implicit cost while explicit costs would be the books, basic tuition fees and laboratory charges, board and lodging and other conventional miscellaneous payments expected when taking a university education.
On the other hand, explicit costs are the noticeable types of costs like rents, water and electric bill payments and expenditures on daily food maintenance (McConnell and Brue 410); in a business world scenario, these are the 'out of pocket' or cash expenditures a commercial enterprise incurs to outsiders who supply them resources.
A business organisation is said to be making normal profit when total revenues equal aggregate expenditures. This takes place in situations of perfect competition when economic equilibrium is achieved. Economically speaking, normal profit is considered as a cost and acknowledged as one of the two elements of the cost of capital. Basically, this is the opportunity cost of employing consumerist capabilities in the creation or manufacture of a good or the profit that could be obtained by entrepreneurship in another commercial undertaking. Just like the opportunity costs of other resources, normal profit is subtracted from revenue to determine economic profit (Pyle and Larson 157-158). Since normal profit is economically a cost, there is no economic profit at equilibrium..
Is Economic Profit a Cost of Production
Yes, by definition, economic profit is equivalent to the amount of output multiplied by the difference between the average cost and the price. This is what remains after all opportunity costs associated with production, are subtracted from the revenue generated by production.
In a single-goods scenario, a positive economic profit occurs when the enterprise' average cost is below the value of the product or service at the profit-maximising output. Fundamentally, an economic profit crops up when its revenue surpasses the total (opportunity) cost of its inputs, noting that these outlays comprise the cost of equity capital that is gathered by normal profits (Albrecht 409). In essence, economic profit is the 'conceptually correct' idea of profit employed in economics, that is, if profit is revenue minus cost, then economic profit is the measure of profit.
In the recession year of 1998, a lot of country A's residents who found themselves out of a job and short of money organised barter networks for goods and services. If such barter networks covered a significant quantity of goods and services, would measured GDP in 1998 be a good estimator of the actual value of goods and services produced during the year
No, it will not be a good or an accurate estimator of the ...Download file to see next pagesRead More
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