Inputs such as wages and salaries to its employees.
Hopefully, the firm makes a profit.
Economists always include both implicit and explicit costs in the calculation of their profits while accountants only cater for explicit costs when calculating profits.So due to the inclusion of opportunity costs, which can be termed implicit costs, economists' profits will always be lower than accountants' profits.Hence an accountant may say they are making profits while it is different from an economist's view.
Explicit costs are payments the firm makes for inputs such as wages and salaries to its employees, whereas implicit costs are non-expenditure costs that occur through the use of self owned resources such as foregone income.
Economic profit will never exceed accounting profit. The accountant will calculate total cost using only explicit costs (basically a transfer of money) that the firm makes. On the other hand, economists will factor in opportunity cost as well. For example, if a person takes their life's savings and invests it in a new company, the interest that the money could be making will be an opportunity cost for the firm, as well as the salary they could be earning at a different firm. This all means that economists will calculate higher costs, which means that economic profit is lower than accounting profit.
When a firm is earning positive economic profit, it means that its total revenue exceeds its total costs, including both explicit and implicit costs. This indicates that the firm is not only covering its operating expenses but also generating a return that exceeds what it could have earned in the next best alternative. Positive economic profit often signals that the firm has a competitive advantage or is operating efficiently in its market. Additionally, it can attract new entrants to the market, potentially leading to increased competition over time.
Explicit costs are payments the firm makes for inputs such as wages and salaries to its employees, whereas implicit costs are non-expenditure costs that occur through the use of self owned resources such as foregone income.
Explicit costs
Explicit costs!
Hopefully, the firm makes a profit.
Economic profit will never exceed accounting profit. The accountant will calculate total cost using only explicit costs (basically a transfer of money) that the firm makes. On the other hand, .
Capacity costs (committed costs) give a firm the capability to produce or to sell,
Economists always include both implicit and explicit costs in the calculation of their profits while accountants only cater for explicit costs when calculating profits.So due to the inclusion of opportunity costs, which can be termed implicit costs, economists' profits will always be lower than accountants' profits.Hence an accountant may say they are making profits while it is different from an economist's view.
Explicit costs are payments the firm makes for inputs such as wages and salaries to its employees, whereas implicit costs are non-expenditure costs that occur through the use of self owned resources such as foregone income.
Costs which are affected by inflation
Economic profit will never exceed accounting profit. The accountant will calculate total cost using only explicit costs (basically a transfer of money) that the firm makes. On the other hand, economists will factor in opportunity cost as well. For example, if a person takes their life's savings and invests it in a new company, the interest that the money could be making will be an opportunity cost for the firm, as well as the salary they could be earning at a different firm. This all means that economists will calculate higher costs, which means that economic profit is lower than accounting profit.
A firm adds its fixed costs and capable costs to determine its todal cost at each level of output.
If a firm is having higher costs than another in the same industry, they will pass the costs to the consumer. That has to happen if the firm is supposed to make any profits.