AP Microeconomics : Costs Part II Quiz

*Theme/Title: Costs Part II
* Description/Instructions
Costs can be explicit or implicit. An explicit cost is expressed in dollars. An example would be that rent is $450 per month. An implicit cost is the opportunity cost or alternate uses of a resource measured in dollars. For example, the building that is being rented for $450 could also be used to produce stuffed animals. The alternate use of the building is the implicit cost. Another name for implicit costs is economic cost. Remember that the opportunity cost is the cost of the next best alternative. Accounting profit is the difference between total revenue and explicit costs. For example, suppose that Juan sells 10 stuffed animals for $10 and his explicit costs are $80. Juan's accounting profit would be $20. Juan would take $100 in total revenue minus $80 in explicit costs. Accounting profit does not take into account the value of the alternative uses for a resource, or the implicit costs. If the implicit costs in Juan's stuffed animal business were $80, Juan would make an economic profit of $20. If the implicit cost of the resources were $100, then Juan would make an economic profit of $-120. Economic profit is equal to total revenue minus explicit and implicit costs. A firm earning zero economic profit is said to be in long-run and is earning a normal profit. At a normal profit of zero, firms have no incentive to enter or exit the industry.

Group: AP Microeconomics AP Microeconomics Quizzes
Topic: AP Microeconomics

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