Topic 5 Abbreviated

Topic 5 Abbreviated - Topic 5 Abbreviated Cost & Profit...

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Topic 5 Abbreviated I. Kinds of Costs A. Private Costs Costs born by decision-makers (usually firms) B. External Costs Costs imposed on others as result of the decision- makers’ choices C. Social Costs Society includes both the decision-makers and others, so social costs are the sum of private costs and external costs D. Explicit Costs Payments made (money spent) E. Implicit Costs Opportunity costs of resources used in production that are owned by the decision-makers, including depreciation II. Profit A. Π = Total Revenue Total Cost 1. Total Revenue = P* x Quantity Sold B. Types 1. Accounting π = Total Revenue – Explicit Costs 2. Economic π = (Total Revenue – Explicit Costs) Implicit Costs = Acct. π – Implicit Costs 3. Normal π = Implicit Costs (approximately) C. If Acct.π > Norm.π, then business owners make more doing what they’re doing than they would in the next best alternative (Acct.π = Norm.π means Econ.π = 0 -> the economic breakeven point)
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Topic 5 Abbreviated - Topic 5 Abbreviated Cost & Profit...

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