Examples of explicit costs in the following topics:
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- Economic profit consists of revenue minus implicit (opportunity) and explicit (monetary) costs; accounting profit consists of revenue minus explicit costs.
- The accounting profit would be $40,000 ($100,000 in revenue - $60,000 in explicit costs).
- The biggest difference between accounting and economic profit is that economic profit reflects explicit and implicit costs, while accounting profit considers only explicit costs.
- Explicit costs are costs that involve direct monetary payment.
- These consist of the explicit costs a firm has to maintain production (for example, wages, rent, and material costs).
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- The concept of "efficiency" is also related to cost.
- The relevant concept of cost is "opportunity cost."
- Worker earns a wage based on their opportunity cost.
- The opportunity costs associated with any activity may be explicit, out of pocket, expenditures made in monetary units or implicit costs that involve sacrifice that is not measured in monetary terms.
- In economics both implicit and explicit opportunity costs are considered in decision making.
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- Individuals face opportunity costs when they choose one course of action over another.
- The value of the next best choice forgone is called the opportunity cost.
- Rational individuals will try to minimize their opportunity costs.
- As economic actors, individuals face opportunity costs as well.
- This is an opportunity cost.
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- In one year, the firm earns a total revenue of $50,000, while spending $15,000 on production (explicit costs) and having $10,000 in foregone wages, rent, and interest (opportunity costs).
- Eventually, the firm's revenue will fall as market price decreases, until the total revenue just covers production costs and opportunity costs, and economic profit equals zero.
- Economic profit is total revenue minus explicit and implicit (opportunity) costs.
- In contrast, accounting profit is the difference between total revenue and explicit costs- it does not take opportunity costs into consideration, and is generally higher than economic profit.
- Graphically, this is seen at the intersection of the price level with the minimum point of the average total cost (ATC) curve.
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- Opportunity cost refers to the value lost when a choice is made between two mutually exclusive options.
- Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen).
- Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility are also considered implicit. or opportunity, costs.
- The opportunity cost of having happier children could therefore be a remodeled bathroom.
- There are explicit costs on the line, such as the capital necessary to start a business, purchase of all the inputs, and so forth.
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- The cost of an externality is a negative externality , or external cost, while the benefit of an externality is a positive externality, or external benefit.
- Those who suffer from external costs do so involuntarily, while those who enjoy external benefits do so at no cost.
- A voluntary exchange may reduce total economic benefit if external costs exist.
- The person who is affected by the negative externalities in the case of air pollution will see it as lowered utility: either subjective displeasure or potentially explicit costs, such as higher medical expenses.
- Here, overall cost and benefit to society is defined as the sum of the economic benefits and costs for all parties involved.
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- In the case of eminent domain, there are costs (opportunity costs) to the authority that defines and enforces the transfer of ownership of goods (property rights).
- There are also costs of using exchange.
- The costs of using exchange are referred to as "transaction costs" (see Coase, "Nature of the Firm," 1937).
- It should be noted that these human creations might be intentional and explicit or unintentional and implicit.
- These vested interests may use their positions and power to prevent institutional change and to work to alter institutions (particularly explicit institutions such as law) in their interests.
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- "Compliance" refers to a response, specifically a submission, made in reaction to an implicit or explicit request.
- The request may be explicit (directly stated) or implicit (subtly implied); the target may or may not recognize that he or she is being urged to act in a particular way.
- Low-balling gains compliance by offering the subject something at a low initial cost.
- The cost may be monetary, time related, or anything else that requires something from the individual.
- After the subject agrees to the initial cost, the requester increases the cost at the last moment.
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- Rules may by implicit or explicit.
- Explicit rules often take the form of law and maybe imposed by governments or organizations.
- Generally, explicit rules are conscious creations and must be communicated and enforced.
- Social groups may also use explicit rules.
- Every action has a cost and a benefit (the cost or benefit may be zero).
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- As a stand-alone tool to compare an investment, the payback method has no explicit criteria for decision-making except, perhaps, that the payback period should be less than infinity.
- The payback method is considered a method of analysis with serious limitations and qualifications for its use, because it does not account for the time value of money, risk, financing or other important considerations, such as opportunity cost.
- While the time value of money can be rectified by applying a weighted average cost of capital discount, it is generally agreed that this tool for investment decisions should not be used in isolation.