Explain implicit and explicit costs as applied to profit. Include examples to su

Question

Explain implicit and explicit costs as applied to profit. Include examples to support your explanation. 2. Explain “Total costs increases as output expands. But the rate of cost increase varies.” Explain with an example. 2. Explain, “For perfectly competitive firms, profits are maximized at the rate of output where price equals marginal cost” Remember profit is considered a cost. Explain with an example. 3. Explain why supply is affected by: 1. The price of factor inputs-labor, capital, resources. 2. Technology – for example computers and robots. 3. Expectations- what is going to happen with the demand for the product thus supply. Ex. a recession 4. Taxes and subsidies-include examples. 5. If one firm making and selling X product and is earning excessive profits how will the eventually effect the market price and the supply of the product? Page 519 Explain implicit and explicit costs as applied to profit. Include examples to support your explanation. 2. Explain “Total costs increases as output expands. But the rate of cost increase varies.” Explain with an example. 2. Explain, “For perfectly competitive firms, profits are maximized at the rate of output where price equals marginal cost” Remember profit is considered a cost. Explain with an example. 3. Explain why supply is affected by: 1. The price of factor inputs-labor, capital, resources. 2. Technology – for example computers and robots. 3. Expectations- what is going to happen with the demand for the product thus supply. Ex. a recession 4. Taxes and subsidies-include examples. 5. If one firm making and selling X product and is earning excessive profits how will the eventually effect the market price and the supply of the product? Page 519 Explain implicit and explicit costs as applied to profit. Include examples to support your explanation. 2. Explain “Total costs increases as output expands. But the rate of cost increase varies.” Explain with an example. 2. Explain, “For perfectly competitive firms, profits are maximized at the rate of output where price equals marginal cost” Remember profit is considered a cost. Explain with an example. 3. Explain why supply is affected by: 1. The price of factor inputs-labor, capital, resources. 2. Technology – for example computers and robots. 3. Expectations- what is going to happen with the demand for the product thus supply. Ex. a recession 4. Taxes and subsidies-include examples. 5. If one firm making and selling X product and is earning excessive profits how will the eventually effect the market price and the supply of the product? Page 519

Explanation / Answer

Implicit and explicit costs explanations with examples are as below:

Implicit cost: The cost which doesn’t carry payment obligation but still calculated for showing the loss of other opportunities is known as implicit cost.

Example: The amount of labor and time given by the owner of a business is implicit cost, because doing the present business is a loss of opportunity of doing other business.

Application to profit: Implicit cost is required for calculating economic profit. This is not considered for accounting profit.

Explicit cost: The cost which requires direct cash payment is known as explicit cost. The non-payment of such cost carries payment obligation.

Example: Payment of salary, rent, interest, etc.

Application to profit: Explicit cost is required for calculating both economic profit and accounting profit.

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