FIN-6446 Chap 6 Notes

FIN-6446 Chap 6 Notes - outside of the business(ex...

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Chapter 6 notes How is profit measured? The economic theory in business behavior is the assumption that the companies’ goal is to maximize their profit. Ap-10,000 ep: 1,000 Three types of profit Accounting profit Explicit cost subtracted by Total Revenue = Accounting Profit (Total Revenue) Economic profit Implicit Cost subtracted by Explicit Cost = Economic Profit (Total Revenue) The difference between Economic Profit and Accounting Profit is Normal Profit The opportunity cost of the resources supplied by a firm’s owner, Accounting Profit minus Economic Profit Example of Explicit Cost: (Key word “Explicit”) spending money for your business
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Unformatted text preview: outside of the business (ex: equipment, supplies). Example of Implicit Cost: (Key word “Implicit”) spending money within your business (ex: paying your workers-salary) Economic Loss: An economic profit that is less than zero When a firm accounting profit is equal to the opportunity of the input supplied by the firm’s owners, the firm’s economic profit is zero. For a firm to be in business for the long run, it must earn an economic profit greater than or equal to zero....
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