econ ch 7 outline - Kristin Chen Econ CH 7-Making Decisions...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Kristin Chen Econ CH 7—Making Decisions 1. Opportunity Cost & Decisions a. Explicit Cost vs. Implicit Cost i. Explicit cost = cost that involves laying out the money ii. Implicit cost = doesn’t require outlay of money, measured by the value in dollar terms of the benefits that are forgone iii. Total opportunity cost = total explicit cost + total implicit cost b. Accounting profit vs. Economic Profit i. Accounting profit = revenue – ii. Economic profit = revenue – opportunity cost of resources 1. Usually less than accounting profit [due to the implicit cost of capital, the opportunity iii. Businesses face implicit costs for 2 reasons 1. Capital (equipment, buildings, tools, inventory, & financial assets) could have been put to use another way 2. 3. Implicit cost of capital = the opportunity cost of capital used by a business; the income the owner could have realized from that capital if it had been used in its next best alternative way
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/13/2008 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell University (Engineering School).

Page1 / 2

econ ch 7 outline - Kristin Chen Econ CH 7-Making Decisions...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online