CH13 Flashcards
What is the formula for profit?
total revenue - total cost
What are explicit costs?
Explicit costs are input costs that require a direct outlay of money by the firm.
What are implicit costs?
Implicit costs are input costs that do not require an actual outlay of money by the firm.
How are implicit costs treated by accountants?
Implicit costs are often ignored by accountants in traditional accounting practices.
How are total costs calculated?
Total costs are the sum of explicit costs (requiring an outlay of money) and implicit costs (not involving a direct money outlay).
What is accounting profit?
Accounting profit is the difference between total revenue and total explicit costs, typically larger than economic profit.
How are implicit costs treated in accounting?
Accountants usually do not record implicit costs for tax-evasion reasons
What is economic profit?
Economic profit is the difference between total revenue and total cost, which includes both explicit and implicit costs. Economists consider all costs to understand decision-making accurately.
