Economic Cost and Profit

Economic Cost and Profit - Economic Cost and Profit 1....

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1 Economic Cost and Profit 1. Three cost concepts. a. Direct cost. b. Sunk cost. c. Opportunity cost. 2. Opportunity vs. acquisition cost. 3. Economic cost and profit. Does it make sense to pursue a career in professional tennis? The specific problem: After a successful career in college tennis, Roger must decide whether to take a chance on a career in professional tennis. The alternative is to accept an open invitation to work at his father’s bank. Roger should weigh the (uncertain) benefits of pro tennis against which costs? • The expenses of traveling to tournaments? • The thousands of hours he has invested in developing his tennis skill? • The bank salary that he will sacrifice while he tries the professional circuit? Yes , this is a direct cost. No , this cost is sunk. Yes , this is an opportunity cost. Direct Costs These are direct costs. When a firm (or person) decides whether to engage in an economic activity, it should consider the cost of acquiring any resources which the activity will use up
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Economic Cost and Profit - Economic Cost and Profit 1....

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