Tutorial Exercise 5_EC7075WI_Econ - Copy.docx

Tutorial Exercise 5_EC7075WI_Econ - Copy.docx - 1...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
1. Differentiate, using at least one real-life example, between economic and accounting costs/profits. Accounting profit can be defined as the revenue generated deducting the monetary cost incurred. However in real business situation’s the loss of opportunity also incurs an implicit cost. The revenue after deducting both implicit and explicit cost incurred is called as economic profit. For example, a company’s accounting profit for year 2016 is $ 3000 Mn. However the organisation could have made $ 300 Mn by signing up a new project but instead of opting to continue with its regular production. The same organisation could have earned a profit of $1000 Mn by exporting the products made instead of marketing the products locally. As Economic profit equals to accounting profit minus sum of implicit costs, here the economic profit for the company is $ $1700 Mn MN( $3000 Mn – ($1000 Mn+ $300 Mn). This means the opportunity of production costed $ 1300 Mn for the organisation’s economic profit.
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern