Podcast
Questions and Answers
What type of cost includes the cost of raw materials?
What type of cost includes the cost of raw materials?
What is an opportunity cost an example of?
What is an opportunity cost an example of?
What type of cost would a smoker bear directly?
What type of cost would a smoker bear directly?
What is the total cost to society of an activity?
What is the total cost to society of an activity?
Signup and view all the answers
What type of cost is not included in the accounting records of a business?
What type of cost is not included in the accounting records of a business?
Signup and view all the answers
What is one of the advantages of large firms in terms of innovation?
What is one of the advantages of large firms in terms of innovation?
Signup and view all the answers
What is a disadvantage of large firms in terms of their influence?
What is a disadvantage of large firms in terms of their influence?
Signup and view all the answers
What is a possible outcome when there is no competition for a large firm?
What is a possible outcome when there is no competition for a large firm?
Signup and view all the answers
What is a moral hazard associated with large firms?
What is a moral hazard associated with large firms?
Signup and view all the answers
What is another possible disadvantage of large firms?
What is another possible disadvantage of large firms?
Signup and view all the answers
Study Notes
Types of Costs
Explicit Costs
- Monetary costs of production that can be accounted for
- Examples: staff wages, cost of raw materials
Implicit Costs
- Non-monetary costs that are not accounted for in the same way as explicit costs
- Examples: opportunity costs
Private Costs
- Costs borne by the individual who engages in an activity
- Example: cost of doctor appointments for a smoker
Social Costs
- Total costs to society of an activity
- Include private costs and costs to others, such as cleaning up cigarettes
Implications of Large Firms
Advantages
- Large firms can invest in Research and Development (R&D), fostering creativity and innovation.
- Economies of Scale allow large firms to offer lower prices to customers.
- Job Security is often higher in large firms, providing employees with a sense of stability.
Disadvantages
- Moral Hazard arises when large firms are protected, reducing their incentive to guard against risk and potentially leading to less creativity.
- Large firms have the resources to merge with or takeover smaller firms, potentially stifling competition.
- They can influence Political Opinion, potentially shaping policies in their favor.
- Large firms may engage in Collusion, secretly cooperating with competitors to fix prices or restrict supply.
- Without competition, large firms may charge Very High Prices, taking advantage of their market dominance.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Identify the different types of costs in economics, including explicit, implicit, private, and social costs. Learn how these costs are accounted for and their impact on production and society.
