Chapter 13 _Part1_ The Costs of Production

Chapter 13 _Part1_ The Costs of Production -...

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Chapter 13(Part1): The Costs of Production Page 1 of 8 I. Opportunity Costs Revisited: A. Explicit vs. Implicit Costs An explicit cost is a cost that involves actually laying out money. An implicit cost does not require an outlay of money; it is measured by the value, in dollar terms, of the benefits that are forgone.
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Page 2 of 8 Accounting Profit Vs. Economic Profit Patricia’s Mexican Restaurant: Made $100,000 in Total Revenue = ___ x___ Her expenses were $60,000 Does this mean she made a Profit of $40,000? (Ignoring depreciation) Accounting Profit: Total revenue minus explicit costs Economic Profit : Total revenue minus Total Costs (TC= Explicit + Implicit) Implicit Costs: Two Primary Types 1) Cost of Capital (including Land costs) Suppose Patricia bought kitchen equipment that costs $30,000 Acct Profit: _____: She could have invested this money at 10% __________ Suppose Patricia took a loan at 10% interest to buy the kitchen equipment Acct Profit: _____: She would pay $3,000 in interest Both Are deducted in Economic Profit – doesn’t
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This note was uploaded on 12/05/2011 for the course ECON 101 taught by Professor Dezhbakhsh during the Fall '07 term at Emory.

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Chapter 13 _Part1_ The Costs of Production -...

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