An Economist's View of Cost and Profit 7.1-1-Jenna Bryant Flashcards
What type of profit uses only explicit costs?
Accounting Profit
What type of profit calculates opportunity costs?
Economic Profit
What are sunk costs?
Unrecoverable costs that a firm expends on a project
Should sunk costs effect current decisions?
No, sunk costs should never effect current decisions
What is the formula for profit?
TR-TC=profit, totatl revenue minus total costs equals profit
What is an explicit cost?
A cost that a firm must write checks for
How is accounting profit calculated?
The firm finds its total revenue and subtracts its explicit costs
Which one is always less: accounting or economic profit?
Economic Profit
How is economic profit calculated?
All profit greater than the opportunity costs and explicit costs
What is another name for economic profit?
Rent
If benefits are greater than the required additional costs to finish it, then?
Finish it
If benefits are less than the required additional costs to finish it, then?
Terminate the project
