Respuesta :
Answer:
Creamy Crisp Donut Company total economic costs is $206,000.
The Firm's Accounting Cost is $150,000
The Firm's Accounting Profit is its Revenue Less its Accounting Costs = $380,000 minus $150,000 = $230,000
The Firm's Economic Profit on the Other Hand is its Revenue Less its Economic Costs = $380,000 minus $206,000 = $174,000
Explanation:
Economic Costs is a term used by Economists to consider the true recognizable costs of taking on a particular course of Action or Venture or Project.
This implies, that Economic Costs = Accounting Costs + Opportunity/Implicit Costs of Projects/Ventures Foregone.
Whereas Accounting Costs recognizes costs attributable ONLY to the project or Venture a Business or Individual have invested in, Economic Costs goes a step further to include the Lost Benefit of not considering the alternatives to the Venture/Project currently undertaken.
From the data provided
A. Our Accounting Costs are:
- Annual lease on building = $22,000
- Payments to workers = $120,000
- Utilities (electricity, water, disposal) costs = $8,000
Total Accounting Costs = $150,000
B. Our Implicit/Opportunity Costs are:
- Entrepreneur's potential earnings as a salaried worker = $50,000
- Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Total Implicit/Opportunity Costs = $56,000
This therefore puts our Economic Costs as $206,000 (i.e. Accounting Costs + Implicit/Opportunity Costs)
Notice we didn't consider the Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000. This is because it doesn't relate to the Current Venture of Creamy Crisp Donut Company and neither does it relate to an opportunity the entrepreneur had to forego to run the existing Donut Company.
In the Future he may choose to run both businesses concurrently or forego of one. But until then it doesn't account yet as an opportunity foregone but a POTENTIAL earning.
