economic cost

Examples of economic cost in the following topics:

• Economic Costs

  • An example of economic cost would be the cost of attending college.
  • So, the economic cost of college is the accounting cost plus the opportunity cost.
  • Economic cost includes opportunity cost when analyzing economic decisions.
  • An example of economic cost would be the cost of attending college.
  • So, the economic cost of college is the accounting cost plus the opportunity cost.

• Types of Costs

  • In economics, the total cost (TC) is the total economic cost of production.
  • It consists of variable costs and fixed costs.
  • Total cost is the total opportunity cost of each factor of production as part of its fixed or variable costs .
  • The economic cost of a decision that a firm makes depends on the cost of the alternative chosen and the benefit that the best alternative would have provided if chosen.
  • Economic cost is the sum of all the variable and fixed costs (also called accounting cost) plus opportunity costs.

• Difference Between Economic and Accounting Profit

  • Economic profit consists of revenue minus implicit (opportunity) and explicit (monetary) costs; accounting profit consists of revenue minus 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.
  • Economic profit is the difference between total monetary revenue and total costs, but total costs include both explicit and implicit costs.
  • Economic profit includes the opportunity costs associated with production and is therefore lower than accounting profit.
  • The biggest difference between economic and accounting profit is that economic profit takes implicit, or opportunity, costs into consideration.

• Average and Marginal Cost

  • Marginal cost is the change in total cost when another unit is produced; average cost is the total cost divided by the number of goods produced.
  • In economics, marginal cost is the change in the total cost when the quantity produced changes by one unit.
  • Economic factors that impact the marginal cost include information asymmetries, positive and negative externalities, transaction costs, and price discrimination.
  • Marginal cost is not related to fixed costs.
  • When the average cost declines, the marginal cost is less than the average cost.

• Individuals Face Opportunity Costs

  • Individuals face opportunity costs in both economic and non-economic decisions.
  • As economic actors, individuals face opportunity costs as well.
  • Such logic applies for every economic decision: purchasing one good means that an individual has chosen to spend resources one way instead of another.
  • Opportunity costs are an important consideration for economists and busnesspeople, but are faced by individuals even when they are not making classically economic decisions.
  • This is an opportunity cost.

• The Supply Curve in Perfect Competition

  • The total revenue-total cost perspective and the marginal revenue-marginal cost perspective are used to find profit maximizing quantities.
  • In economics, a cost curve is a graph that shows the costs of production as a function of total quantity produced.
  • In a free market economy, firms use cost curves to find the optimal point of production (minimizing cost).
  • There are two ways in which cost curves can be used to find profit maximizing quantities: the total revenue-total cost perspective and the marginal revenue-marginal cost perspective.
  • The total revenue-total cost perspective recognizes that profit is equal to the total revenue (TR) minus the total cost (TC).

• Cost

  • Producers who desire to earn profits must be concerned about both the revenue (the demand side of the economic problem) and the costs of production.
  • The concept of "efficiency" is also related to cost.
  • The relevant concept of cost is "opportunity cost."
  • In economics both implicit and explicit opportunity costs are considered in decision making.
  • An implied wage to an owner-operator is an implicit opportunity cost that should be included in any economic analysis.

• Cost of capital

  • The cost of capital refers to the cost of the money used to pay for the capital.
  • Firms usually calculate a single cost of capital number, and, under economic theory, will only pursue projects with an expected return greater than the cost of capital.
  • In order to determine a company's cost of capital, the cost of debt and the cost of equity must be calculated.
  • One way of combining the cost of debt and equity to generate a single cost of capital number is through the weighted-average cost of capital (WACC).
  • The cost of capital is the cost of the money used to finance the plant.

• Short Run and Long Run Costs

  • In economics, "short run" and "long run" are not broadly defined as a rest of time.
  • Long run costs are accumulated when firms change production levels over time in response to expected economic profits or losses.
  • Fixed costs have no impact of short run costs, only variable costs and revenues affect the short run production.
  • Examples of variable costs include employee wages and costs of raw materials.
  • The short run costs increase or decrease based on variable cost as well as the rate of production.

• Costs and Production in the Short-Run

  • AFC is fixed cost per Q.
  • It is the variable cost per Q.
  • Total Cost (TC) is the sum of the FC and VC.
  • Average Total Cost (AC or ATC) is the total cost per unit of output.
  • In Principles of Economics texts and courses MC is usually described as the change in TC associated with a one unit change in output,