Here are the instructions:
- Review the narrated lecture on Business and the Cost of Production http://lectures.mhhe.com/narrated_slides/0078021758/chapter09/presentation_html5.html
- Review the concept of Economic Profit in the textbook (picture of the section attached)
- Review the Khan Videos
http://www.khanacademy.org/finance-economics/microeconomics/v/fixed–variable–and-marginal-cost
http://www.khanacademy.org/finance-economics/microeconomics/v/marginal-cost-and-average-total-cost
ASSIGNMENT
1. Explain why economic costs include both explicit costs and implicit costs.
2. Explain the concept of opportunity cost as related to the doctor in the Khan Academy video who gave up his profession to open a business.
3. What other factors do you think the doctor may have considered when he decided to leave his profession to open a business?
Do not forget reference page with credible resources
Economic costs are measured in terms of explicit and implicit costs because in both situations there is a measure of an opportunity foregone in the decision made to incur that costs. Explicit costs are measured as economic costs because the money used to meet these expenses such as labor and rent is unavailable for use in other profitable activity (Mitra, 2014). The £2000 incurred in paying the rent for my business is unavailable for any other activity that would have been profitable. Implicit costs, on the other hand, represent alternatives foregone through the approach implemented such as an assumed interest gained from the £2000 if it was invested.(452words)