Explain the difference between the economist’s and the accountant’s view of profit
What will be an ideal response?
Generally speaking, profit is equal to total revenue minus total cost. The difference in the economist’s and accountant’s view of profit is essentially one of what to include in total costs. The accountant views total costs narrowly and only includes explicit costs—payments made by the firm to outsiders. The economist considers total cost to be composed of not only explicit costs but also implicit costs—payments for resources contributed to the firm (e.g., owner’s time, a building) for which no explicit payment is made. Thus, from the economist’s perspective, profit is what remains after all opportunity costs, both explicit and implicit, have been subtracted from total revenue. This economic, or pure, profit will be an amount less than what would be calculated by the accountant when there are implicit costs that need to be considered.
You might also like to view...
Refer to the scenario above. If India pegs the exchange rate at 70 rupees per dollar, it will require ________ rupees to repay the loan in dollars
A) 700,000 B) 70 C) 70,000 D) 7,000
In the short run, average fixed cost is constant as output increases
Indicate whether the statement is true or false
In July, market analysts predict that the price of gold will rise in August. What happens in the gold market in July, holding everything else constant?
A) The supply curve shifts to the right. B) The demand curve shifts to the left. C) The quantity demanded and the quantity supplied increase. D) The supply curve shifts to the left.
In order to be binding, a price floor
A) must lie below the free-market equilibrium price. B) must coincide with the free-market equilibrium price. C) must be high enough for firms to earn a profit. D) must lie above the free-market equilibrium price.