...Cost theory and estimationm’s cos: An individual firm cost of production has great influence on the total market supply of a particular commodity that is why it is important to understand the production cost concept. Different types of costs: Cost of production can be classified as Opportunity Cost Opportunity cost is a cost associated with a decision that includes both the explicit and implicit costs. The unique aspect of opportunity cost is that it also includes costs associated with making an alternate decision. The costs associated with an alternative are called implicit costs. The accounting cost of making a decision is called the explicit cost. While explicit, or accounting, costs are fairly easy to calculate, implicit costs are not as easy. Measuring the cost of the best foregone alternative can be not as easy as anticipated. By reading this Wiki right now, you are paying an implicit cost of your next best alternative. This can and often will be different for everyone. For you, it may be that the next best alternative instead of reading this is watching television. For someone else, it may be surfing the internet. IMPLICIT COST A cost that is represented by lost opportunity in the use of a company's own resources, excluding cash. These are intangible costs that are not easily accounted for. For example, the time and effort that an owner puts into the maintenance of thecompany|company rather than working on expansion. EXPLICIT COST A business expense that...
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...Supply Production Cost Click Link Below To Buy: http://hwcampus.com/shop/hca530-supply-production-cost/ Write an answer of no less than one-half page in length for each of the first four questions below about economic concepts described in chapters 6 and 7 of the text, Economics of Health and Medical Care. Calculate and fill in the blanks for the table in question 5. 1. Explain the difference between explicit and implicit costs of production. Both explicit and implicit costs are part of the total opportunity costs. Opportunity costs are costs incurred when producing a good; or in the case of health care, providing services for patients, such as doctor’s office or laboratory. Explicit costs it’s the actual monetary payments that are recorded, or input costs that require and outlay of money by the company. For example the wages paid for labor or the rent paid. Explicit costs are the sum of all the monetary payments made for resources used to produce a good. For example in a doctor’s office an explicit cost would be the salary of the person that does the billing, or the salary of the doctor himself. Implicit costs are costs that require no actual monetary payments, they do not require an outlay of money by the firm, and they include the total value of resources used to produce a good, which no direct payment is made. All non-monetary outlay of the production costs associated with all the inputs used in production must be included into these costs. An example of...
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...and involves in depth analysis of many aspects like explicit costs, implicit costs, capital, marginal costs, and marginal benefits. Realtor Magazine explains that five critical factors to consider when purchasing a home are price, taxes, the surrounding area, local ordinances, and economic development. These factors often do not have a price tag, but add or subtract from other values gained from a particular home. The method that leads to the best economic outcome is the principal of either-or decision-making. This principal states when making an either-or choice between two activities, choose the one with the positive economic profit. Accounting profit is equal to revenue minus the explicit cost, but economic profit is revenue minus the opportunity cost of the resources that were used. Obviously the price of a house is very important and is great example of an explicit cost. All explicit costs require an outlay of money. Other examples of explicit costs of homeownership are taxes and utilities. Homeownership also has implicit costs which do not require money. Economists measure implicit costs to determine something's economic benefit. One example of implicit cost is giving up the benefit of others doing maintenance or landscaping. Another example is homeowners also forgo the ability to move to other locations with ease. Homeownership also has sunk costs, which have already been paid for but cannot be recovered. One sunk cost all homeowners face is interest. According to Realtor...
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...a) Explain the basic economic concepts using the production possibilities curve(PPC) Let us assume that a JASMINE produces two products- trucks and boats. The PPC for trucks and boats shows the limits to the production of these two goods, given the total resources available to produce them. The basic economic concepts are: Scarcity, choices and opportunity cost. Point on A, B, C shows the first basic concept of CHOICES. If JASMINE is using its resources in an efficient way, then it is not possible to produce more of one good without producing less of another. JASMINE will have to make choices whether point A or point B or point C to maximize its satisfaction. On the PPF, every CHOICE made will bring about a TRADE OFF. Any point along the PPC is attainable and efficient. Resources are fully utilized in the most efficient way possible. Any point outside the PPC such as point E shows the second basic concept of SCARCITY. Because PPC shows the limits to production, therefore we cannot attain point that OUTSIDE PPC. Point outside PPC is unattainable. At point E, JASMINE wishes to produce 9 thousands of boats and 9 thousands of trucks. But due to limited resources and technology, this cannot be achieved. Point E is point that describes wants that cannot be satisfied. Therefore, point outside PPC shows scarcity. A movement from point A to point B or point B to point C shows the third basic economic concept of OPPORTUNITY COST. For example, at point B, JASMINE produces 7 000...
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...Review 1. (Explicit and Implicit Costs) Amos McCoy is currently raising corn on his 100-acre farm and earning an accounting profit of $100 per acre. However, if he raised soybeans, he could earn $200 per acre. Is he currently earning an economic profit? Why or why not? Amos McCoy is not currently making an economic profit, despite the fact that he is making an accounting profit. This is so, because the accounting profit calculation does not take into account an important implicit cost—the opportunity cost of not raising soybeans. Actually, McCoy is experiencing an economic loss. According to our theory, he should get out of the corn business and begin growing soybeans. This question highlights the important distinction between accounting profit and economic profit. 2. (Explicit and Implicit Costs) Determine whether each of the following is an explicit cost or an implicit cost: a) Payments for labor purchased in the labor market b) A firm’s use of a warehouse that it owns and could rent to another firm c) Rent paid for the use of a warehouse not owned by the firm d) The wages that owners could earn if they did not work for themselves a) explicit; b) implicit; c) explicit; d) implicit 3. (Alternative Measures of Profit) Calculate the accounting profit or loss as well as the economic profit or loss in each of the following situations: a. A firm with total revenues of $150 million, explicit cost of $90 million...
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...Channel at its narrowest point, Calais—which was what the Germans expected—or it could try to surprise the Germans by landing farther west, in Normandy. Since men and landing craft were in limited supply, the Allies could not do both. In fact, they chose to rely on surprise. The German defences in Normandy were too weak to Allies went on to liberate France and win the war. Thirty years earlier, at the beginning of World War I, German generals had to stop the landings, and the What you will learn in this chapter: ➤ How economists model decision making by individuals and firms The importance of implicit as well as explicit costs in decision making The difference between accounting profit and economic profit, and why economic profit is the correct basis for decisions The difference between “either–or” and “how much” decisions The principle of marginal analysis What sunk costs are and why...
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...economics tools are five core economics concepts or principles which I deduced could be referred to as economics tools by some, that also appear to be underlying themes throughout the chapters, and, can be of considerable assistance to managers in their decision making practice when solving business problems. These core economics concepts shown below can be taken as a guide in decision making and solving business problems: 1. Opportunity Cost: The opportunity cost of using resources is the amount the firm gives up by using these resources. Opportunity cost can be either explicit costs or implicit cost. Explicit costs are the cost of using market-supplied resources, which are the monetary payments to hire, rent, or lease resources owned by others. Implicit costs are the costs of using owner-supplied resources, which are the greatest earnings foregone from using resources owned by the firm in the firm’s own production process. Total economic cost is the sum of explicit and implicit costs. a) Example of the opportunity cost owned by the firm: Consider a company that paid $500,000 for a property five years ago but the market value of the property has since dropped to $250,000. Since the circumstance of the property value has changed, the implicit cost now is the best return that could be earned if the land is sold for $250,000, not $500,000, and the proceeds are invested. If the $250,000 could be invested at 5% annually, the implicit cost is $12,500 (= .05 *$250,000) per year...
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...1 Cost Concepts Since production involves the use of factor inputs, producers have to pay for these factors in order to carry out production. The payment made to factor inputs represent the cost of production. Such costs can be of different types:1. Explicit and implicit costs Explicit cost refers to the cost of those factors which do not belong to the entrepreneur and for which a payment has to be made. For example wages to workers, the cost of raw materials bought etc… Explicit costs are also known as the paid out costs or the accounting costs. Implicit costs refer to the cost of those factor inputs which belong to the entrepreneur and for which no payment has to be made. For example the interest which is not paid if the producer uses his own capital or the rent which is not paid if he owns the building and premises. Implicit costs are also known as imputed costs or opportunity cost. The distinction between explicit and implicit cost is important mainly because of the difference in the approach to the calculation of profits by the economist and the accountant. To the accountant for instance, profit is total revenue minus total explicit cost while to the economist, the term cost is viewed in terms of opportunity cost and so it should take into account all the alternatives forgone. Thus cost to the economist will be explicit plus implicit. Profits in the economic sense of the word is therefore total revenue minus total explicit cost minus total implicit cost...
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...QCT1 Question 9: How is the concept of a normal return on investment related to the distinction between business and economic profit? The difference between the business profit which is useful for accounting and tax purposes and economic profit is that in economic profit, profit is calculated by revenue of the firm minus its explicit costs and implicit costs. On the other hand, business profit refers to the revenue of the firm minus the explicit or accounting cost of the firm. Now, in business accounting normal return is the minimum profit that is required to cover the expenditures of the firm’s inputs and all of the expenses associated with it. A profit will be anything greater than the breakeven profit. On the other hand, economic profit is just forgone cost estimation. Therefore, normal profit is required in business profit and not in economic profit, which is one of the differences between the two types of profits. Problem 6: Determine which of the two investment projects of Problem 5 the manager should choose if the discount rate of the firm is 20 percent. Project 2 Answer is: 450,000/1+.2 Problem 9: A women managing a photocopying establishment for 25,000 per year decides to open her own duplicating place. Her revenue during the first year of operation is $120,000 and her expenses are as follows a. Explicit cost $81,000 b. Implicit cost $35,000 c. Business profit $39,000 d. Economic profit $4,000 e. Normal return on investment $4,000 Froeb...
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...CHAPTER 9 READING OUTLINE 1. Distinguish between explicit and implicit costs. Explicit costs are payments the firm must make for inputs to non-owners of the firm to attract them away from other employment, for example, wages and salaries to its employees. Implicit costs are non-expenditure costs that occur through the use of self-owned, self-employed resources, for example, the salary the owner of a firm forgoes by operating his or her own firm and not working for someone else. 2. Explain an accounting profit and an economic profit. Accounting profit equals sales revenue minus explicit costs, such as material, the wages of employees, etc… and Economic profit equals the accounting profit minus the additional implicit costs of the business. This includes entrepreneurial ability, forgone interest, forgone labor income, etc… 3. Explain how the short run differs from the long run. In the short run, the industry is composed of a specific number of firms, each with a plant size that is fixed and unalterable in the short run. Firms may shut down in the sense that they can produce zero units of output in the short run, but they do not have sufficient time to liquidate their assets and go out of business. But, in the long run the firms already in an industry have sufficient time to either expand or contract their capacities. More importantly, the number of firms in the industry may either increase or decrease as new firms enter or existing firms leave. 4....
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...in that country compared to the relative wage of labor in other countries “(Colander, 2010, p. 438). As companies move to cut costs, moving work overseas to employees that are willing to work for less money, in some cases significantly less money, can improve that company’s bottom line. As a telemarketing firm, our focus is on providing quality service to our clients, but our company has to demonstrate that we are cost effective to prevent that company from outsourcing to a foreign vendor. One of the things that I thought was interesting about this past week that accounting has a different measure of profit compared to what an economist’s measure of profit. When it comes to accounting and their ways of measuring profit which is total revenue minus total costs which will get you profit. Whereas in the economist’s way of getting profit which is explicit revenue and implicit revenue minus explicit cost and implicit cost which will get you the economist’s profit. After this weeks reading, I realize that the effect of changes in marginal revenues and costs on a firm’s profit-making potential is that the best possible performance of any company is to increase their earnings and revenue or increase a company’s worth. Since I work in finance, then the way to calculate a business total profit is determined by their total revenue less total cost or expenses. We are currently realigning things based on the economy and increase production in areas that are more profitable...
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...13 The Costs of Production © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Premium PowerPoint Slides by Ron Cronovich ACTIVE LEARNING 1 Brainstorming costs You run Ford Motor Company. List three different costs you have. List three different business decisions that are affected by your costs. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. In this chapter, look for the answers to these questions: • What is a production function? What is marginal product? How are they related? • What are the various costs, and how are they related to each other and to output? • How are costs different in the short run vs. the long run? • What are “economies of scale”? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2 Total Revenue, Total Cost, Profit We assume that the firm’s goal is to maximize profit. Profit = Total revenue – Total cost the amount...
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...The Welfare State - A Cost Benefit Analysis The role of welfare within our society has always been controversial. This problem emphasizes the need to understand the roles of variable factors when pertaining to the subject of welfare within our society. The proposed analysis will address the phenomenon of welfare assistance and several factors which may contribute to the increase or decrease of welfare assistance to the poor in 4 ways: (1) by defining major concepts and any other concepts about which there is likely to be misunderstanding (2) by further examining the past history pertaining to the subject of welfare assistance within the United States; (3) by developing the formulation of a hypothesis which will provide for an explanation of welfare; and finally (4) determining whether or not the benefits of welfare assistance outweigh the cost. Ultimately, the purpose of this research analysis is to investigate variable factors that may contribute to the increase or decrease of welfare assistance. This cost benefit analysis is an attempt to explain the tentative assumptions of others pertaining to the subject of welfare, in order to determine and explain the relationship of welfare to the economic cost and benefits. Cost-Benefit Analysis Before welfare assistance can be analyzed there is a need to define the terms that will be used. Policies like welfare assistance are worthwhile only if the benefits to society are greater than the costs. When choosing among a set of policies...
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...economic naturalist – one who recognises economic decisions around them, who can apply these skills to explain our decisions, and understand the costs and benefits for groups, individuals and society. From lecture, “one who uses basic economic concepts to make sense of observations on all aspects of everyday life”. * Define the scarcity principle(definition in 1.1) and explain its implications for decision making – as resources are scarce, by choosing one thing, you forgo the choice of another. Eg – type of lunch, recreational activities. (From slide) “Although we have boundless needs and wants, the resources are limited → having more of one thing usually means having less of another” Resources – land, labour, capital, enterprise. * Define the cost benefit principle and apply it to simple economic decisions “An individual/firm/society should take an action, if the extra benefits> or = to extra costs.” Going out for pizza/study for test choice → explicit cost of pizza ($10) and Implicit cost of worse test mark (5/10 marks) *Opportunity cost=cost forgone=real cost – value of the next-best alternative to taking an action. Eg- pizza →$10 and 10 marks is opportunity cost. *Economic surplus is the benefit of taking any action minus its cost. The goal is to maximize its surplus. Eg- walk into town to save $10 on video games. Walking costs $5 → surplus =$5 *Reservation Price – highest price one is willing to pay; can be different from market commodity price. * List four...
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...STUDY Guide Quiz #2 This test consists of 24 multiple choice questions. You will have two hours to complete the quiz. What is a trade deficit? (imports versus exports) exports are less than imports Trade deficits are situations in which the imports of goods and services exceed the products exported by a specific country. While is it not unusual for nations with a very stable economy to experience a small amount of trade deficit from time to time, prolonged periods with a significant imbalance between exports and imports can create significant economic issues within the country. At the same time, a trade deficit may also weaken the currency of the country on the Forex market. What division in the U.S. makes the decision to increase interest rates? Central Bank, IE The FED, Federal Reserve What division in the U. S. makes the decision to increase taxes? U.S Congress What is monetary policy? p478, p516 - Monetary policy affects the exchange rate primarily through its effect on the real interest rate. * Monetary policy refers to the decisions that determine the nation’s money supply and interest rates * Monetary policy is set and implemented by a nation’s central bank * In the U.S. the central bank is called the Federal Reserve System or simply the Fed Founded in 1913 * Primary mission of fostering economic growth, keeping inflation low, and maintaining stability in financial markets What is fiscal policy? p478 - refers to discussions to decisions that determine...
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