Explicit and Implicit Costs TIME
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9Costs of Production and the Financing of a Firm
SATYADAS_CH_09.qxd 9/13/2007 2:27 PM Page 202 Costs of Production and 9 the Financing of a Firm CONCEPTS ● Explicit Costs ● Implicit Costs ● Accounting Costs ● Economic Costs ● Short-run Cost Concepts ● Long-run Cost Concepts ● Fixed or Total Fixed Cost ● Overhead Costs ● Variable Cost or Total Variable Cost ● Total Cost ● Marginal Cost ● Average Fixed Cost ● Average Variable Cost ● Average Cost or Average Total Cost ● Plant Size ● Economies of Scale ● Division of Labour ● Diseconomies of Scale ● Social Cost ● Private Cost ● Externality ● Positive Externality ● Negative Externality ● Plough Back of Profits ● Retained Earnings ● Loans from Financial Institutions ● Mortgage ● Equity and Debt Instruments 202 SATYADAS_CH_09.qxd 9/13/2007 2:27 PM Page 203 Costs of Production and the Financing of a Firm 203 owards the end of the last chapter we saw that as output increases, the total cost rises. But there is much more to it than just that. In this chapter we Tstudy in detail various types of costs and their relation to output. To begin with, there are explicit costs and implicit costs. Explicit costs are those, which are directly paid to other parties by an entrepreneur or a company running a business. They include, for example, the costs of labour, raw material, machinery purchased and so on. Implicit costs are those for which there is no direct payment but indirectly there is a cost involved. Suppose you own a two-storey building. You live on the first floor and operate a small publishing company on the ground floor. Obviously, you do not have any rental cost of business operation. -
A Historical Sketch of Profit Theories in Mainstream Economics
International Business Research; Vol. 9, No. 4; 2016 ISSN 1913-9004 E-ISSN 1913-9012 Published by Canadian Center of Science and Education A Historical Sketch of Profit Theories in Mainstream Economics Ibrahim Alloush Correspondence: Ibrahim Alloush ,Department of Economic Sciences, College of Economics and Administrative Sciences, Zaytouneh University, Amman, Jordan. Tel: 00962795511113, E-mail: [email protected] Received: January 4, 2016 Accepted: February 1, 2016 Online Published: March 16, 2016 doi:10.5539/ibr.v9n4p148 URL: http://dx.doi.org/10.5539/ibr.v9n4p148 Abstract In this paper, the main contributions to the development of profit theories are delineated in a chronological order to provide a quick reference guide for the concept of profit and its origins. Relevant theories are cited in reference to their authors and the school of thought they are affiliated with. Profit is traced through its Classical and Marginalist origins into its mainstream form in the literature of the Neo-classical school. As will be seen, the book is still not closed on a concept which may still afford further theoretical refinement. Keywords: profit theories, historical evolution of profit concepts, shares of income and marginal productivity, critiques of mainstream profit theories 1. Introduction Despite its commonplace prevalence since ancient times, “whence profit?” i.e., the question of where it comes from, has remained a vexing theoretical question for economists, with loaded political and moral implications, for many centuries. In this paper, the main contributions of different economists to the development of profit theories are delineated in a chronological order. The relevant theories are cited in reference to their authors and the school of thought they are affiliated with. -
The Transaction Costs Manual What Is Behind Transaction Cost Figures and How to Use Them October 2020 Contents
For professional investors and advisers only In Focus The transaction costs manual What is behind transaction cost figures and how to use them October 2020 Contents Introduction 3 Part 1 What are transaction costs and how do they relate to best execution? 4 Explicit transaction costs 4 Implicit transaction costs 5 Where does “best execution” fit in? 7 The key takeaways 8 Part 2 How to measure transaction costs 9 The estimation conundrum 9 What does the regulation say? 10 The additional complication: fund pricing and the “offset” 13 The key takeaways 14 Part 3 The relationship between transaction costs and returns 15 Pricing 15 Timing 15 More trading means… 15 Different transaction costs, different returns 16 The key takeaways 17 Part 4 The mystical transaction cost figures and how (not) to use them 18 Different funds, different transaction costs 18 How not to use transaction cost figures 20 How to use transaction cost figures 21 The key takeaways 21 Conclusion 23 2 The transaction costs manual What is behind transaction cost figures and how to use them In this paper we (attempt to) tackle the complicated issue of transaction costs. We outline what one needs to know about reported transaction costs and explain how to avoid common pitfalls when using them. Author To cut what is a very long story short: – transaction costs are a necessary part of investing; – estimating them is complex; – no two trades are the same so transaction cost figures should not be compared in isolation; – and, finally, higher transaction costs do not mean a more expensive fund or lower returns. -
Abnormal Profit See Supernormal Profit Absolute Advantage 171-4, 177, 178 Accelerator Theory 124, 126, 128 Accepting Houses 140
235 INDEX A Barriers to trade see Protection Barter 132 Abnormal profit see Supernormal profit Bill of exchange 53, 140, 143 Absolute advantage 171-4, 177, 178 Birth rate 80, 82, 83, 229 Accelerator theory 124, 126, 128 Black economy see Underground Economy Accepting houses 140, 143 Black market 28, 31, 32 Acquisitions 42, 63 Bonds 140, 149, 150, 153 Adaptive expectations 169, 170 Budget 121, 135, 145, 212, 213, 217, 219, 220 Advertising 42, 58, 65, 73, 78, 89 Budget line 34, 35 Aggregate demand 117, Ch.22, 161-3, 182, 197, Buffer stock 29 209, 219-25, 227 Bulk-buying 41, 46, 71 Aggregate supply Ch. 22, 161, 223-5 Aid, bilateral and multilateral 104, 232, 233 Allocative efficiency 182-4, 197, 204, 206, 208, 209, c 211, 212, 223, 229, 230 Capital 1, 43, 45, 46, 79, 86, 90, 91, 96, 97, 100, 108, Appreciation of currency 194-6, 198 123, 124, 127, 131, 133, 135, 136, 203, 206, 207, Arbitrage 146, 147 220, 231-4 Asset demand for money 149, 150 Capital depreciation see Depreciation of capital Asset stripping 42 Cartels 60, 76, 78, 230-2 Assisted areas 53, 212 Cecchini Report 107 Average cost 40, 43, 47-52, 57, 65, 66, 73, 74, 78 Central bank see Bank of England Average product 39, 40, 45, 46, 51, 52 Centrally planned economies 3--5 Average propensity to save 115, 227 Certificates of deposit 140, 143, 144 Average revenue 48, 49, 51, 65, 68, 73--6 Cheques 139, 144, 147 Average revenue product 93 Choice (and scarcity) 1-3 Circular flow of income 221 Clearing banks 14 B Collusion 76, 78 Common Agricultural Policy (CAP) 29, 181, 203--5, Balance of payments 1, 30, 64, 70, 161, 163, 180, 207-9, 211 182, Ch. -
The Legacy of the Olympics: Economic Burden Or Boon?
ECONOMICS PAGE ONE NEWSLETTER the back story on front page economics August I 2012 The Legacy of the Olympics: Economic Burden or Boon? Lowell R. Ricketts, Senior Research Associate “The true legacy of London 2012 lies in the future…I am acutely aware that the drive to embed and secure the benefits of London 2012 is still to come. That is our biggest challenge. It’s also our greatest opportunity.” —David Cameron, Prime Minister of the United Kingdom The Olympic Games are considered the foremost athletic competition in the world. The modern games have reached a scale that their ancient Greek founders could scarcely dream of. More than 10,000 athletes and 5,000 coaches and team officials, collectively representing nearly every country in the world, will convene in London for the 2012 Summer Games. Hosting over half a million spectators each day for 16 straight days requires nearly a decade of preparation and an extensive investment by the host nation and city. Despite these demanding obligations of time and money, no fewer than 7 cities have bid to host each of the past 4 Summer Olympics; in fact, the 2008 games had 11 bidding cities. Clearly, there are economic benefits associated with the games that these accommodating hosts deem more valuable than the expected costs.1 When considering the economic costs and benefits of hosting the Olympics it is important to differentiate between explicit and implicit costs and benefits. Examples of explicit costs include direct spending on the construction of the Olympic facilities. Implicit costs stem from the opportunity cost of the explicit costs; the opportunity cost of the funds spent to host the Olympics is the benefit the host city and country would have received from the best alternative use of the funds. -
Chapter 13: the Costs of Production Principles of Economics, 8Th Edition N. Gregory Mankiw Page 1 1. Introduction A. We Are No
Chapter 13: The Costs of Production Principles of Economics, 8th Edition N. Gregory Mankiw Page 1 1. Introduction a. We are now shifting to the analysis of supply decisions. b. We are going to this analysis of cost to look at industrial organization, which studies how firms make decisions about prices and quantities based on the market conditions that they face. 2. What Are Costs? a. Total Revenue, Total Cost, and Profit i. Costs are important in the calculation of a firm’s profits–which we will argue is its ultimate goal. (1) The goal of “maximizing” profits follows from the assumption that rational people make decisions based on their desire to increase their welfare. (2) When an organization does not have a profit that flows to its owners, its managers will attempt to “maximize” some other goal such as prestige or peace of mind. ii. Total revenue is the amount a firm receives for the sale of its output. P. 248. iii. Total cost is the amount a firm pays to buy the inputs into production. P. 248. iv. Profit is total revenue minus total cost. P. 248. (1) You also think about profit as the difference between the value created (people bought it) and the costs incurred. 3. Costs as Opportunity Costs a. The cost of something is what you give up to get it. i. An explicit cost is for inputs that require an outlay of money by the firm. P. 249. ii. An implicit cost is for inputs costs that do not require an outlay of money by the firm. -
13.Factor Pricing ; Rent
13.Factor pricing ; rent - Ricardian rent-economic rent – Quasi – rent; Wage– marginal productivity theory of wage; Interest - Liquidity preference theory; Profit –Risk-bearing theory of profit. DISTRIBUTION The theory of distribution or the theory of factor pricing deals with the determination of factor prices, such as wages, rents, interest and profit. i) Marginal Productivity Theory of Distribution According to this theory, the price of a factor of production depends upon its marginal productivity. A factor of production should get its reward according to the contribution it makes to the total output, i.e., its marginal productivity. Change in the revenue resulting from the employment of an extra unit of the factor is called Marginal Revenue Product (MRP) or Value of Marginal Product (VMP) and the change in total cost brought about by using an extra unit of the factor is called Marginal Factor Cost (MFC). Change in Total Revenue Δ TR VMP = MRP = = Change in Input Δ X Change in Total Cost Δ TC MFC = = Change in Input Δ X In factor market, a firm’s equilibrium occurs when MRP=MFC. In product market, a firm’s equilibrium will be at MR = MC (MR is the Marginal Revenue and MC is the Marginal Cost). The marginal productivity theory is defective because it indicates how many units of a factor (input) a firm will use at a given price in order to maximize its profit. For example, it tells us how many workers a firm will employ at a given wage rate to maximize its profit. But it does not tell us how the wage itself is determined. -
The Interaction Between Migrants and Origin Households: Evidence from Linked Data
VERY PRELIMINARY PLEASE DO NOT CITE The Interaction Between Migrants and Origin Households: Evidence from Linked Data Joyce J. Chen ∗ The Ohio State University Nazmul Hassan Dhaka University June 2012 Abstract Economists’ understanding of the effects of migration has been largely limited to what can be gleaned from separate surveys of migrants and their origin households. This is problematic when the interaction between the two parties affects patterns of resource allocation, above and beyond the direct effects of migration in income and household composition. Using a unique panel dataset from Bangladesh that includes linked data on migrants and origin households, we assess the cost of information asymmetries that arise with migration. Variation in migrant travel times is used to generate variation in the cost of communication between migrants and origin households. However, because migration, as well as the destination, may be chosen with information asymmetries in mind, two sets of instrumental variables are employed: lagged employment shocks at potential destinations and historical migrant networks. ∗ Contact information: Mailing Address – Department of Agricultural, Environmental and Development Economics, 324 Agricultural Administration Building, 2120 Fyffe Road, Columbus, OH 43210; E-mail – [email protected] ; Phone - (614)292-9813. Support from NIH grant 5R01DK072413 and the Initiative in Population Research is gratefully acknowledged. All remaining errors are my own. Introduction. Migration, both inter- and intra-national, has been increasing rapidly. Roughly 214 million individuals currently live and work outside their country of birth, an increase of more than 20% over the previous decade, and international remittance flows to developing countries far exceed official aid flows (International Organization for Migration, 2010). -
Chapter 06 Testbank
Chapter 06 Testbank 1. The economic theory of business behavior assumes that the goal of a firm is to A. earn an accounting profit. B. earn an economic profit. C. earn maximum revenue. D. maximize its profit. 2. Explicit costs A. measure the opportunity costs of the business owners. B. are always fixed in the short run. C. measure the payments made to the firm's factors of production. D. are always variable in the short run. 3. Which of the following is not an example of explicit costs? A. Wages paid to workers B. Personal savings of the owner invested in the firm C. Salaries paid to management D. Office space rent 4. Explicit costs A. are the only costs that matter to business owners. B. usually exceed implicit costs. C. are difficult to measure. D. appear on the firm's balance sheet. 5. Implicit costs A. are always fixed. B. measure the forgone opportunities of the owners of the business. C. always exceed explicit costs. D. are irrelevant to business decisions. 6. Accounting profits are A. equal to total revenues minus implicit costs. B. the difference between total revenues and explicit costs. C. equal to total revenues minus explicit and implicit costs. D. less than economic profits. 7. An example of an implicit cost is A. interest paid on a bank loan. B. wages paid to a family member. C. the value of a spare bedroom turned into a home office. D. operating costs of a company-owned car. 8. If you were to start your own business, your implicit costs would include A. -
Opportunity Cost and Explain Why Accounting Profits and Economic Profits Are Not the Same.”
Microeconomics Topic 1: “Explain the concept of opportunity cost and explain why accounting profits and economic profits are not the same.” Reference: Gregory Mankiw’s Principles of Microeconomics, 2nd edition, Chapter 1 (p. 3-6) and Chapter 13 (p. 270-2). Scarcity Economics is the study of how people make choices under scarcity. What is scarcity? Scarcity means that resources are limited. There are not enough resources available to satisfy everyone’s wants. This is clearly true for individuals. Your income is limited. You cannot buy everything you want, so you must choose between different alternatives. Your time is also limited. You cannot do everything you want to, so you are forced to choose between different alternatives. If you choose to spend the day at the beach, you give up going to class or working. Opportunity Cost This concept of scarcity leads to the idea of opportunity cost. The opportunity cost of an action is what you must give up when you make that choice. Another way to say this is: it is the value of the next best opportunity. Opportunity cost is a direct implication of scarcity. People have to choose between different alternatives when deciding how to spend their money and their time. Milton Friedman, who won the Nobel Prize for Economics, is fond of saying "there is no such thing as a free lunch." What that means is that in a world of scarcity, everything has an opportunity cost. There is always a trade-off involved in any decision you make. The concept of opportunity cost is one of the most important ideas in economics. -
The Implicit Costs of Motherhood Over the Lifecycle: Cross-Cohort Evidence from Administrative Longitudinal Data
DISCUSSION PAPER SERIES IZA DP No. 10558 The Implicit Costs of Motherhood over the Lifecycle: Cross-Cohort Evidence from Administrative Longitudinal Data Christian Neumeier Todd Sørensen Douglas Webber FEBRUARY 2017 DISCUSSION PAPER SERIES IZA DP No. 10558 The Implicit Costs of Motherhood over the Lifecycle: Cross-Cohort Evidence from Administrative Longitudinal Data Christian Neumeier University of Konstanz Todd Sørensen University of Nevada, Reno and IZA Douglas Webber Temple University and IZA FEBRUARY 2017 Any opinions expressed in this paper are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but IZA takes no institutional policy positions. The IZA research network is committed to the IZA Guiding Principles of Research Integrity. The IZA Institute of Labor Economics is an independent economic research institute that conducts research in labor economics and offers evidence-based policy advice on labor market issues. Supported by the Deutsche Post Foundation, IZA runs the world’s largest network of economists, whose research aims to provide answers to the global labor market challenges of our time. Our key objective is to build bridges between academic research, policymakers and society. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. IZA – Institute of Labor Economics Schaumburg-Lippe-Straße 5–9 Phone: +49-228-3894-0 53113 Bonn, Germany Email: [email protected] www.iza.org IZA DP No. 10558 FEBRUARY 2017 ABSTRACT The Implicit Costs of Motherhood over the Lifecycle: Cross-Cohort Evidence from Administrative Longitudinal Data* The explicit costs of raising a child have grown over the past several decades. -
COST CONCEPTS-Converted.Pdf
COST CONCEPTS Introduction: A firm carries out business to earn maximum profits. Profits are the revenues collected by a business firm after production and sale of their goods and services. But to gain something, the producer has to lose something. That means, to earn revenues the producer has to incur costs. Cost: A cost is an expenditure incurred by a firm to produce goods and services for sale in the market. In other words, a cost is the outflow of money from the business to gain inflow of money after sale of the commodity. A producer has to incur various costs in order to produce goods and services. These costs are of various types. Types of cost: The following are the various types of costs:- 1. Direct costs or explicit costs 2. Indirect costs or implicit costs 3. Fixed costs 4. Variable costs 5. Accounting costs 6. Economic costs 7. Total costs 8. Average costs 9. Marginal costs 10. Opportunity costs 11. Operating costs Direct cost or explicit cost: Explicit costs are those costs which are met by cash payments for employing various factors of production. The producer actually pays money to produce his goods and services. A direct or explicit cost is the material, labor, expenses, overheads, selling and distribution, administrative cost related to production of a commodity. It is accurate in nature. An explicit cost can be easily traceable. An explicit cost is defined as follows: “An explicit cost is a direct expense that is paid in money to others or creditors during the production of goods.” Uses of explicit costs: 1.