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AP Economics

AP Economics. Mr. Bernstein Module 52: Defining Profit November 4, 2013. AP Economics Mr. Bernstein. Understanding Profit Economists and Accountants differ on the definition of profit All costs are opportunity costs

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AP Economics

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  1. AP Economics Mr. Bernstein Module 52: Defining Profit November 4, 2013

  2. AP EconomicsMr. Bernstein Understanding Profit • Economists and Accountants differ on the definition of profit • All costs are opportunity costs • Explicit costs are moneys actually paid out (ie rent, interest on debt, cost of raw materials, labor, utility bills, depreciation…”Accounting costs”) • Implicit costs do not require cash outlay (ie foregone salary, interest or rent when capital or the owner’s time and energy are used elsewhere…included in ”Economic costs”)

  3. AP EconomicsMr. Bernstein Defining Profit • Profit = TR – TC • TR = P x Q • (precise definition of TC will be covered in Module 55) • Economists use p to represent profit • Economists include both explicit and implicit costs in determining profit

  4. AP EconomicsMr. Bernstein Normal Profit • Economic Profit = zero is said to be “Normal Profit” • TR = All explicit AND implicit costs • When a firm is earning a normal profit, it can do no better using resources in the next best alternative use • …so zero Economic Profit is not so bad!

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