Economic vs. Accounting Costs in Production and Cost Analysis
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Questions and Answers

What is the main difference between explicit costs and implicit costs?

  • Explicit costs are accounting costs, while implicit costs are not recorded in the firm's accounts.
  • Explicit costs are monetary payments made to suppliers, while implicit costs are the values of self-owned resources used by the firm. (correct)
  • Explicit costs are the costs of raw materials, while implicit costs are the costs of labor and capital.
  • Explicit costs are the actual cash outlays made by the firm, while implicit costs are the opportunity costs of the firm's own resources.

    • Which of the following is an example of an implicit cost?

  • Wages paid to employees
  • The estimated value of the owner's time spent managing the business (correct)
  • The rent paid for the firm's office space
  • The cost of raw materials used in production

    • Why do economists and accountants define and treat costs differently?

  • Economists and accountants have different goals and perspectives in analyzing business activities. (correct)
  • Economists consider opportunity costs, while accountants only consider actual cash outlays.
  • Economists focus on explicit costs, while accountants focus on implicit costs.
  • Economists are more interested in profit maximization, while accountants are more interested in cost minimization.

    • Which of the following is NOT considered an explicit cost for a business firm?

    <p>The estimated value of the owner's time spent managing the business</p> Signup and view all the answers

    Why are explicit costs also referred to as 'accounting costs'?

    <p>Because they are the costs of purchased inputs, which are the only costs relevant for accounting purposes.</p> Signup and view all the answers

    Which of the following is included in economic cost but not in accounting cost?

    <p>Implicit costs</p> Signup and view all the answers

    Which of the following is an example of a fixed cost?

    <p>Rent on leased properties</p> Signup and view all the answers

    If a firm's total cost is $100,000 and its total fixed cost is $40,000, what is its total variable cost?

    <p>$60,000</p> Signup and view all the answers

    If a firm's total variable cost is zero, what can be inferred about its output level?

    <p>The firm is not producing anything</p> Signup and view all the answers

    Which of the following statements is true about explicit costs?

    <p>They are out-of-pocket expenses for purchased inputs</p> Signup and view all the answers

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