Stumped on Economics?
This question boggles my mind - if someone could help, I'd really appreciate it.
CONSIDER THE FOLLOWING -
Entrepreneur's potential earnings as a salaried worker = 50,000
Annual Bldg lease - 22,000
annual revenue from operations - 380,000
payments to workers - 120,000
utilities costs - 8,000
entrepreneurs potential economic profit from next best entrepreneurs activity - 80,000
entrepreneurs foregone interest on personal funds used to finance the business - 6,000
What are the...
1) explicit costs?
2) implicit costs including normal profits?
3) total economics costs?
4) accounting profit?
5) economic profit?
Answer:
Economist don't define profit the same way accountants do. Explicit costs are payments to outsider to secure resources (you will be writing a check for this stuff). Lease, workers pay, utilities.
Implicit costs are costs associated with self owned resources (no check necessarily written to secure internal resources). Forgone profit from other alternative, foregone interest,foregone wages if working for the other guy. These are all "opportunity costs". Accounting profit is revenues (380,000) minus explicit costs only (22,000 lease, 120,000 workers, 8,000 utilities). Accounting profit is therefore $230,000. Economic profit is revenues 380,000 minus all costs (explicit and implicit/opportunity costs). Econ profit is therefore$94,000. You might want to check my math on these.
oooh!...that hurts!...ouch!
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CONSIDER THE FOLLOWING -
Entrepreneur's potential earnings as a salaried worker = 50,000
Annual Bldg lease - 22,000
annual revenue from operations - 380,000
payments to workers - 120,000
utilities costs - 8,000
entrepreneurs potential economic profit from next best entrepreneurs activity - 80,000
entrepreneurs foregone interest on personal funds used to finance the business - 6,000
What are the...
1) explicit costs?
2) implicit costs including normal profits?
3) total economics costs?
4) accounting profit?
5) economic profit?
Answer:
Economist don't define profit the same way accountants do. Explicit costs are payments to outsider to secure resources (you will be writing a check for this stuff). Lease, workers pay, utilities.
Implicit costs are costs associated with self owned resources (no check necessarily written to secure internal resources). Forgone profit from other alternative, foregone interest,foregone wages if working for the other guy. These are all "opportunity costs". Accounting profit is revenues (380,000) minus explicit costs only (22,000 lease, 120,000 workers, 8,000 utilities). Accounting profit is therefore $230,000. Economic profit is revenues 380,000 minus all costs (explicit and implicit/opportunity costs). Econ profit is therefore$94,000. You might want to check my math on these.
oooh!...that hurts!...ouch!
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