When firms exit a perfectly competitive industry, the market supply curve shifts to the left. true10/24/2023 Gortari, the radish farmer, would subtract explicit costs, such as charges for labor, equipment, and other supplies, from the revenue he receives.Įconomists recognize costs in addition to the explicit costs listed by accountants. It is the measure of profit firms typically report firms pay taxes on their accounting profits, and a corporation reporting its profit for a particular period reports its accounting profits. Profit computed using only explicit costs is called accounting profit. Explicit costs include charges that must be paid for factors of production such as labor and capital, together with an estimate of depreciation. An economic loss (negative economic profit) is incurred if total cost exceeds total revenue.Īccountants include only explicit costs in their computation of total cost. We shall see in this section that the model of perfect competition predicts that, at a long-run equilibrium, production takes place at the lowest possible cost per unit and that all economic profits and losses are eliminated.Įconomic Versus Accounting Concepts of Profit and LossĮconomic profit equals total revenue minus total cost, where cost is measured in the economic sense as opportunity cost. New firms can enter any market existing firms can leave their markets. In the long run, a firm is free to adjust all of its inputs.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |