Question

Hello I have these questions, Can I please get some assistance, I need not so long or short answers please

1. How to decide what job to take. Is that a marginal decision?
2. What is an explicit cost?
3. What is an implicit cost?
4. How is accounting profit calculated?
5. How is economic profit calculated?

Answer 1

Yes, deciding what job to take is a marginal decision as we analysis the returns in terms of salary and bonus we would get along with the cost such as transportation cost, etc. The job that would provide us with the maximum marginal returns would be the job we would select.

The Explicit cost are the actual cost that are incurred by a firm for making all the physical payments and its contractual obligations. The examples are payments made for the cost of material, labor, equipment, rent of the building, advertisment expenses. Therefore, all the money expenses that are recorded in the books of accounts of a firm are the explicit cost.

Implicit cost represents a firm's opportunity cost of utilizing the resources that it already owns. They are the perceived loss in the revenue from undertaking an action, but they do not involve an actual transfer of money. They are not recorded in the books of accounts. Examples of such cost are salary foregone of a self employed entrepreneur, rent on a building used for a firm's own operations, etc.

Accounting profit is revenue less the explicit cost of a firm. It shows the profit made after deducting all the expenses that are recorded in the books of accounts. It is determined by keeping in mind the accounting principles

Economic profit is revenue less the explicit as well as the implicit cost of a firm. It is determined by the economics principles.