Question

please discuss in detail using facts data and examples

Distinguish between explicit and implicit costs, giving examples of each. What are some explicit and implicit costs of attending college? Distinguish between accounting profit, economic proft, and normal pront. Does accounting profit or economic profit determine how entrepreneurs allocate resources between different business ventures? Explain.. List several fixed and variable costs associated with owning and operating an automobile. Suppose you are considering whether to drive your car or fly about 770 miles to Colorado for a summer vacation. Which costs-fixed, variable, or both-would you take into account in making your decision? Would any implicit costs be relevant? Explain.

Answer 1

Explicit cost is the out of pocket cost which includes actual money expenses incurred by the firm for using factors of production.	Implicit cost is imputed or oppotunity cost of factors owned by firm but not actually paid for to outsider.
IT helps in calculating both accounting and Economic profit.	It helps in calculating only Economic profit.
It results in outflow of cash	It does not result in outflow of cash
It is shown in the books of accounts	It is not shown in accounting books
It can be determined easily	As it the opportunity cost of owning factors, it can't be easily determined
For example-----wages/ salaries to workers/staff, rent , interest on loan, office expenses, raw material cost	Example----- Rent for self owned building, salary for own services, Interest on self employed capital
It is used for income tax purposes	It is not used for IT purposes.

# Some explicit and implicit cost for attending college ----------------------

*Explicit cost-------

expenses on books

Transportation expenses

College tuition fee

College lab fee

Cost incurred on buying laptop/ computer

*Implicit cost------------

Forgone salary------ If not joined college

Sacrificed interest earnings ( if money spent for joining college were deposited in bank)

# Distinguish between Accounting Profit , Economic Profit and normal Profit----------

Accounting profit	Economic profit	Normal profits
It is difference between firm' s revenue and explicit cost	It is the difference between firm' s revenue and total cost( implicit + explicit)	It is the minimum amount required to keep the business firm running.
Accounting profit------:- Revenue-explicit cost	Economic Profit------: Revenue-(explicit cost + implicit cost)	Normal profits--------: explicit cost + implicit cost
It gives true picture of financial condition of the firm ,is used for income tax purposes	It may not give true picture of firm' s financial health, so is not used for IT purpose	It is a particular stage when firm is just recovering its total cost. The stage of econiy Profit comes after it.
It is determined by GAAP	It is determined by Economic principles	It is a break even point (w no profit isno loss),a pre stage of moving towards economic Profit.

# It is the Economic profit which determines how entrepreneurs allocate resources between different business ventures.The readon is Economic Profit considers both implicit cost and explicit cost ,that actual vost paid to outsider plus opportunity cost( cost foregone)

# Fixed and variable cost associated with owning and operating an automobile-------

* Fixed cost----

Price of vehicle ( EMI)

Depreciation

Insurance

Driving licence fee

Interest on loan

Registration and taxes

* Variable cost-------

Fuel charges ( petrol / diesal)

Repairs

Partial maintenance charges

Toll tax

Car wash

# It is both explicit and implicit cost which will be taken into account while making decisions regarding driving a car or fly about 770 miles to colorado for summer vacation.

Explicit cost----- Expenses of fuel, Depreciation in case of car driving.While air ticket charges in case of air travel.

# yes ,there is implicit cost underneath-----

The hefty amount spent on vacation could be used to neet out other demands plus time spent in vacation could be used in earning.