Accounting costs = Explicit Costs
Accounting Profit= Total Revenue- Explicit Costs
Economic costs= Explicit Costs+ Implicit Costs
Economic Profit= Total Revenue-Explicit Costs-Implicit Costs
Explicit costs: Direct Costs
Implicit Costs: Indirect Costs
The Shop's accounting costs can be calculated by adding all the explicit costs(Supplies,electricity,employee salaries,Mr Moore's salary)= 25000+6000+75000+80000=186000(Accounting Costs)
Mr Moore's Economic costs ,if he takes up the job at the local supermarket=EC1= Accounting costs+100,000+95000=381000
Mr Moore's Economic costs, if he takes up the job at the nearby restaurant=EC2=Accounting costs+100000+65000=351000
Accounting Profit= Total Revenue-Accounting Costs
= 250000- 186000=64000
Mr Moore's Economic Profit if he takes up the job at the local supermarket= Total Revenue-Acccounting Costs-EC1= 250000-381000-186000=-317000
Mr Moore's Economic Profit if he takes up the job at the nearby restaurant= Total revenue-Accounting Costs-EC2= 250000-351000-186000=-287000
Mr Moore should shut down the shop because the economic profits turn out to be negative. He should shut down the shop and rent out the land as well as take up a job at the local supermarket. Thereby he will earn better than what he used to earn when he was running the shop.
1. A grocery shop is owned by Mr. Moore and has the following statement of revenues...
In the problem, I am confused for
economic cost because the EC is the sum of accounting and
opportunity cost. but what exactly is the opportunity cost? is it
Dan's Salary? is it the elxtricity and water? or is it the high end
job?
The accounting cost is the sum of
the direct costs and raw materials so its 150K (supplies) + 15K
(electricity&water) + 50K employse salary + 60K (Dans salary) =
275K
- i dont understand why Dans...
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