Podcast
Questions and Answers
A small bakery owner uses their own car, which is fully paid off, to deliver cakes. Which type of cost does the depreciation of the car represent for the business?
A small bakery owner uses their own car, which is fully paid off, to deliver cakes. Which type of cost does the depreciation of the car represent for the business?
- Not a cost, as the car is already fully paid off.
- An implicit cost, reflecting the opportunity cost of using the car for business instead of other purposes. (correct)
- An explicit cost, as it involves a tangible asset.
- An accounting cost, directly impacting the cash flow.
A consultant leaves a salaried position paying $70,000 per year to start their own consulting firm. In the first year, the firm generates $150,000 in revenue and has $50,000 in explicit expenses. What is the consultant's economic profit for the year?
A consultant leaves a salaried position paying $70,000 per year to start their own consulting firm. In the first year, the firm generates $150,000 in revenue and has $50,000 in explicit expenses. What is the consultant's economic profit for the year?
- $80,000
- $150,000
- $30,000 (correct)
- $100,000
A company reports total revenue of $500,000 and explicit costs of $300,000. If the owner could have earned $150,000 working elsewhere, what is the company's accounting profit?
A company reports total revenue of $500,000 and explicit costs of $300,000. If the owner could have earned $150,000 working elsewhere, what is the company's accounting profit?
- $350,000
- $500,000
- $200,000 (correct)
- $50,000
Which of the following scenarios best illustrates an implicit cost?
Which of the following scenarios best illustrates an implicit cost?
A firm generates $800,000 in total revenue by selling 4,000 units. What is the price per unit?
A firm generates $800,000 in total revenue by selling 4,000 units. What is the price per unit?
A business owner invests $50,000 of their own money into the business, which could have earned them 8% annually in a low-risk investment. This foregone return represents:
A business owner invests $50,000 of their own money into the business, which could have earned them 8% annually in a low-risk investment. This foregone return represents:
To determine economic profit, which costs are subtracted from total revenue?
To determine economic profit, which costs are subtracted from total revenue?
A company has total revenues of $1,000,000. Explicit costs total $600,000, and implicit costs are $200,000. Calculate the accounting and economic profits.
A company has total revenues of $1,000,000. Explicit costs total $600,000, and implicit costs are $200,000. Calculate the accounting and economic profits.
A furniture maker uses wood from their own forest, rather than purchasing it on the open market. What type of cost is represented by the potential revenue the owner could have earned by selling the wood?
A furniture maker uses wood from their own forest, rather than purchasing it on the open market. What type of cost is represented by the potential revenue the owner could have earned by selling the wood?
If a business increases its price from $10 to $12 per unit and sales decrease from 200 units to 150 units, what is the change in total revenue?
If a business increases its price from $10 to $12 per unit and sales decrease from 200 units to 150 units, what is the change in total revenue?
Flashcards
Explicit Costs
Explicit Costs
Out-of-pocket expenses a firm incurs, representing actual cash outflows.
Implicit Costs
Implicit Costs
Opportunity costs of using resources already owned by the firm.
Accounting Profit
Accounting Profit
Total Revenue minus Explicit Costs. It's a cash-based view of profitability.
Economic Profit
Economic Profit
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Total Revenue
Total Revenue
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Study Notes
Types of Costs
- Costs fall into explicit and implicit categories
- Explicit costs involve out-of-pocket expenses for a firm.
- Explicit costs include wages, rent and utilities
- Implicit costs are the opportunity costs of using already owned resources
- Implicit costs consist of an owner's time without salary or using personal property for business
Profit Calculations
- Profit can be viewed as either accounting profit or economic profit.
- Accounting profit is total revenue minus explicit costs.
- It is a cash-based concept reflecting a business's cash flow
- Economic profit is total revenue minus all costs, explicit and implicit.
- It gives a comprehensive view of profitability by including opportunity costs
Revenue Generation
- Revenue is calculated as price times quantity sold
- Total revenue is affected by product demand
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