Micro- Profit Quiz

Implicit and explicit costs

Opportunity cost of resources employed by a firm that takes the form of cash payments

Wages, rent, interest, insurance, taxes

Opportunity costs of using resources owned by the firm or provided by the firm's owners without a cash payment

Revenues, explicit costs, and accounting profit

Equals total revenue minus explicit costs. Determines a firms taxable income

Also ignores the opportunity cost of it's own resources (implicit costs) used in the firm

Equals total revenue minus all costs. Takes into account both the explicit and implicit costs. (All resources used in production)

The accounting profit earned when all resources earn their opportunity cost, equal to implicit cost

Mainly based on the ideas of implicit and explicit cost. Accounting profit is total revenue minus the explicit costs, it does not take into account the resources or opportunity costs of the firm itself. While economic profit takes into account all areas of production. Economic profit is total revenue minus both implicit and explicit costs.