Chapter 8

Chapter 8 - Chapter 8 (pages 194-219) Total pages: 26...

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Chapter 8 (pages 194-219) Total pages: 26 Profit o Definition : the difference between total revenue and total cost. Profit = total revenue - total cost Explicit Cost o Definition : a cost that is incurred when an actual (monetary) payment is made. Implicit Cost o Definition : a cost that represents the value of resources used in production for which no actual (monetary) payment is made. o Example: Jill has earned a $110,000 profit during her first year running a pizzeria. Jill computes this by subtracting the costs of running the pizzeria ($90,000) from her total revenue ($200,000). She did not count the $80,000 salary that she would have made as an attorney as a cost of running the pizzeria because the $80,000 is not something she “paid out” to run the pizzeria. She still forfeited $80,000 to run the pizzeria. What she could have earned but didn’t is a cost of running the pizzeria. o Implicit cost is a cost incurred as a result of a firm using resources that it owns or that the owners of the firm contribute to it. Accounting Profit o Definition : the difference between total revenue and explicit costs. Accounting Profit = total revenue – total costs (explicit costs) Economic Profit o Definition : the difference between total revenue and total cost, including both explicit and implicit costs.
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This note was uploaded on 11/03/2009 for the course ECON 2000 taught by Professor Roussell during the Fall '06 term at LSU.

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Chapter 8 - Chapter 8 (pages 194-219) Total pages: 26...

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