Question

Words QUESTION 3 5 points Save Antwer Define the total average and marginal cost functions. How and why does an economist's definition of profit differ from an accountant's definition of profit? TTT Arial (121) T.E.E.5. 2 Words:0

Answer 1

Total cost function expressed as TC(Q)= FC + V(Q) , gives the sum of fixed and variable costs .

Average cost function is the cost per unit of output = TC / Q

Marginal cost function is the change in total cost due to unit change of output , or increase in total cost due to last unit produced = d ( TC ) / d ( Q ) . It measures the extra amount of resources it takes to produce one more unit of good .

Accounting profit = Total revenue - Explicit costs

Explicit costs are out of pocket physical costs like wage , rent etc .

Economic profit = Total revenue - ( Explicit + Implicit costs )

Implicit costs are the opportunity costs of next best alternative forgone , interest rate forgone when money is invested in business and not kept in bank .

This is the difference between both profits .