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An explicit cost is a direct payment made to others in the course of running a business, such as wage, rent and materials, [1] as opposed to implicit costs, where no actual payment is made. [2] It is possible still to underestimate these costs, however: for example, pension contributions and other "perks" must be taken into account when ...
Economic cost is the combination of losses of any goods that have a value attached to them by any one individual. [ 1 ] [ 2 ] Economic cost is used mainly by economists as means to compare the prudence of one course of action with that of another.
It is different from accounting profit, which only relates to the explicit costs that appear on a firm's financial statements. An accountant measures the firm's accounting profit as the firm's total revenue minus only the firm's explicit costs. An economist includes all costs, both explicit and implicit costs, when analyzing a firm. Therefore ...
Methods to calculate cost basis. The cost basis for stocks and mutual funds is generally the price you paid when you purchased the asset, plus any other trading costs. However, there are several ...
For example, the IS model of only the goods market [1]: pp. 250–260 derives the market-clearing (and thus endogenous) level of output depending on the exogenously imposed level of interest rates, since interest rates affect the physical investment component of the demand for goods.
The oldest cost (i.e., the first in) is then matched against revenue and assigned to cost of goods sold. Last-In First-Out (LIFO) is the reverse of FIFO. Some systems permit determining the costs of goods at the time acquired or made, but assigning costs to goods sold under the assumption that the goods made or acquired last are sold first.
The purpose of calculating economic profits (and thus, opportunity costs) is to aid in better business decision-making through the inclusion of opportunity costs. In this way, a business can evaluate whether its decision and the allocation of its resources is cost-effective or not and whether resources should be reallocated.
The marginal cost can also be calculated by finding the derivative of total cost or variable cost. Either of these derivatives work because the total cost includes variable cost and fixed cost, but fixed cost is a constant with a derivative of 0. The total cost of producing a specific level of output is the cost of all the factors of production.