• Home

  • Documents

  • Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the...
31
Accountants vs. Economists Accountants look at only EXPLICIT COSTS. • Explicit costs are the traditional “out-of pocket costs” of decision making. • Ex: Going to Disneyland Economists look at the EXPLICIT COSTS and the IMPLICIT COSTS. • Implicit costs are the opportunity costs such as forgone time and forgone income. • 1

Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Embed Size (px)

DESCRIPTION

The Production Possibilities Curve (PPC) Using Economic Models… Step 1: Explain concept in words Step 2: Use numbers as examples Step 3: Generate graphs from numbers Step 4: Make generalizations using graph 3

Citation preview

Page 1: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Accountants vs. EconomistsAccountants look at only EXPLICIT COSTS.•Explicit costs are the traditional “out-of pocket costs” of decision making.• Ex: Going to Disneyland

Economists look at the EXPLICIT COSTS and the IMPLICIT COSTS.•Implicit costs are the opportunity costs such as forgone time and forgone income.• Ex: Payton Manning leaves the NFL to open a

taco shop. 1

Page 2: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Society has unlimited wants but unlimited resources

The Economizing Problem…Scarcity

WE HAVE A PROBLEM!!

2

Page 3: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

The Production Possibilities Curve

(PPC)Using Economic Models…

Step 1: Explain concept in wordsStep 2: Use numbers as examplesStep 3: Generate graphs from numbersStep 4: Make generalizations using graph

3

Page 4: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

What is the Production Possibilities Curve?• A production possibilities curve (PPC) is a model

that shows alternative ways that an economy can use its scarce resources

• This model graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency.

4 Key Assumptions• Only two goods can be produced • Full employment of resources• Fixed Resources (Ceteris Paribus)• Fixed Technology

4

Page 5: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

a b c d e f14 12 9 5 0 00 2 4 6 8 10

BikesComputers

NOW GRAPH IT: Put bikes on y-axis and computers on x-axis

Production “Possibilities” Table

Each point represents a specific combination of goods that can be

produced given full employment of resources.

5

Page 6: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Bik

es

Computers

14

12

10

8

6

4

2

00 2 4 6 8 10

A

B

C

D

E

G

Inefficient/ Unemployment

Impossible/Unattainable (given current resources)

Efficient

Production PossibilitiesHow does the PPG graphically demonstrates scarcity, trade-

offs, opportunity costs, and efficiency?

6

Page 7: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

2 Bikes2.The opportunity cost of moving from b to d is…

4.The opportunity cost of moving from f to c is…

3.The opportunity cost of moving from d to b is…

7 Bikes

4 Computer

0 Computers

5.What can you say about point G?Unattainable

1. The opportunity cost of moving from a to b is…

Example:

Opportunity Cost

7

Page 8: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

The Production Possibilities Curve (or Frontier)

8

Page 9: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

PIZZA 0 1 2 3 4CALZONES 4 3 2 1 0

• List the Opportunity Cost of moving from a-b, b-c, c-d, and d-e.

• Constant Opportunity Cost- Resources are easily adaptable for producing either good.

• Result is a straight line PPC (not common)

Production PossibilitiesA B C D E

9

Page 10: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

PIZZA 20 19 16 10 0ROBOTS 0 1 2 3 4

• List the Opportunity Cost of moving from a-b, b-c, c-d, and d-e.

• Law of Increasing Opportunity Cost-• As you produce more of any good, the

opportunity cost (forgone production of another good) will increase.

• Why? Resources are NOT easily adaptable to producing both goods.

• Result is a bowed out (Concave) PPC

A B C D EProduction Possibilities

Page 11: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Constant vs. Increasing Opportunity Cost

Corn

Wheat

Cactus

Pineapples

Identify which product would have a straight line PPC and which would be bowed out?

Page 12: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

1 Bike2.The PER UNIT opportunity cost of moving from b to c is…

4.The PER UNIT opportunity cost of moving from d to e is…

3.The PER UNIT opportunity cost of moving from c to d is…

1.5 (3/2) Bikes

2 Bikes

2.5 (5/2) Bikes

= Opportunity CostUnits Gained

1. The PER UNIT opportunity cost of moving from a to b is…

Example:

PER UNIT Opportunity CostHow much each marginal unit costs

NOTICE: Increasing Opportunity Costs 12

Page 13: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

The Production Possibilities Curve and Efficiency

13

Page 14: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Productive Efficiency- • Products are being produced in the least

costly way. • This is any point ON the Production

Possibilities CurveAllocative Efficiency-

• The products being produced are the ones most desired by society.

• This optimal point on the PPC depends on the desires of society.

Two Types of Efficiency

14

Page 15: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Productive and Allocative EfficiencyB

ikes

Computers

14

12

10

8

6

4

2

00 2 4 6 8 10

A

B

C

D

F

E

Which points are productively efficient?Which are allocatively efficient?

G

15

Productively Efficient combinations are A through D

Allocative Efficient combinations depend on

the wants of society (What if this represents a

country with no electricity?)

Page 16: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Why two types of efficiency?

Size 20 running shoes

Size 10 running shoes

A

Is combination “A” efficient?Yes and No. It is productively efficient but it is not the

combination society wants

Page 17: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Shifting the Production Possibilities Curve

17

Page 18: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

4 Key Assumptions Revisited• Only two goods can be produced • Full employment of resources• Fixed Resources (4 Factors)• Fixed Technology

What if there is a change?3 Shifters of the PPC

1. Change in resource quantity or quality

2. Change in Technology3. Change in Trade 18

Production Possibilities

Page 19: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Rob

ots

Pizzas

What happens if there is an increase

in population?

19

Production Possibilities

Page 20: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Rob

ots

Pizzas

What happens if there is an increase

in population?

20

Production Possibilities

Page 21: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Rob

ots

Pizzas

What if there is a technology improvement

in pizza ovens

21

Production Possibilities

Page 22: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Rob

ots

Pizzas

What if there is a technology improvement

in pizza ovens

22

Production Possibilities

Page 23: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Panama – Favors Consumer Goods

Mexico – Favors Capital Goods

Consumer goods

Capi

tal G

oods

Current PPC

Future PPC

Consumer goods

Capi

tal G

oods

Future PPC

Current PPC

Capital Goods and Future Growth

MexicoPanama23

Countries that produce more capital goods will have more growth in the future.

Page 24: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

PPC PracticeDraw a PPC showing changes for each of the

following:Pizza and Robots (3)

1. New robot making technology2. Decrease in the demand for pizza

3. Mad cow disease kills 85% of cows

Consumer goods and Capital Goods (4) 4. BP Oil Spill in the Gulf 5. Faster computer hardware 6. Many workers unemployed 7. Significant increases in education

24

Page 25: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

New robot making technologyQ

Q

Rob

ots

Pizzas

Question #1

25

A shift only for Robots

Page 26: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Decrease in the demand for pizzaQ

Q

Rob

ots

Pizzas

Question #2

26

The curve doesn’t shift!A change in demand

doesn’t shift the curve

Page 27: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Mad cow disease kills 85% of cowsQ

Q

Rob

ots

Pizzas

Question #3

27

A shift inward only for Pizza

Page 28: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

BP Oil Spill in the GulfQ

QCap

ital G

oods

(Gun

s)

Consumer Goods (Butter)

Question #4

28

Decrease in resources decrease production possibilities for both

Page 29: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Faster computer hardwareQ

QCap

ital G

oods

(Gun

s)

Consumer Goods (Butter)

Question #5

29

Quality of a resource improves shifting the

curve outward

Page 30: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Many workers unemployedQ

QCap

ital G

oods

(Gun

s)

Consumer Goods (Butter)

Question #6

30

The curve doesn’t shift!Unemployment is just a point inside the curve

Page 31: Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going

Significant increases in educationQ

QCap

ital G

oods

(Gun

s)

Consumer Goods (Butter)

Question #7

31

The quality of labor is improved. Curve shifts

outward.


Economic profit = total revenue - all economic costs Economic profit = total revenue - all economic costs Economic costs include accounting cost (explicit

Economic profit = total revenue - all economic costs Economic profit = total revenue - all economic costs Economic costs include accounting cost (explicit

Documents
The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk

The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk

Documents
Farmer's Agribusiness Training Course: Module 5 - Agribusiness Management for Farmer Organisations. Lesson 3: Decision Making - Explicit and Implicit Costs

Farmer's Agribusiness Training Course: Module 5 - Agribusiness Management for Farmer Organisations. Lesson 3: Decision Making - Explicit and Implicit Costs

Education
INTEGRATED VEHICLE ROUTING PROBLEM WITH EXPLICIT ...transp.rpi.edu/~HUM-LOG/Doc/Vault/IRP.pdf · INTEGRATED VEHICLE ROUTING PROBLEM WITH EXPLICIT CONSIDERATION OF SOCIAL COSTS IN

INTEGRATED VEHICLE ROUTING PROBLEM WITH EXPLICIT ...transp.rpi.edu/~HUM-LOG/Doc/Vault/IRP.pdf · INTEGRATED VEHICLE ROUTING PROBLEM WITH EXPLICIT CONSIDERATION OF SOCIAL COSTS IN

Documents
Explicit Dynamics Explicit Meshing

Explicit Dynamics Explicit Meshing

Documents
MEGaVis: Perceptual Decisions in the Face of Explicit Costs and Benefits

MEGaVis: Perceptual Decisions in the Face of Explicit Costs and Benefits

Documents
Information Sampling Behavior With Explicit Sampling Costs...time, energy, and money spent acquiring it. Stigler (1961) analyzed the economic costs of prolonging a search for a better

Information Sampling Behavior With Explicit Sampling Costs...time, energy, and money spent acquiring it. Stigler (1961) analyzed the economic costs of prolonging a search for a better

Documents
The Costs of Production Explicit and Implicit Costs – Explicit Costs: Money payments that a firm makes for the use of resources owned by others (labor,

The Costs of Production Explicit and Implicit Costs – Explicit Costs: Money payments that a firm makes for the use of resources owned by others (labor,

Documents
Businesses and the Cost of Production · Economic Profit LO1 Explicit costs Accounting costs (explicit costs only) Implicit costs (including a normal profit) Economic profit Accounting

Businesses and the Cost of Production · Economic Profit LO1 Explicit costs Accounting costs (explicit costs only) Implicit costs (including a normal profit) Economic profit Accounting

Documents
The Costs of Production Chp: 8 Lecture: 15 & 16. Economic Costs Equal to opportunity costs Explicit + implicit costs Explicit costs Monetary payments

The Costs of Production Chp: 8 Lecture: 15 & 16. Economic Costs Equal to opportunity costs Explicit + implicit costs Explicit costs Monetary payments

Documents
20 : Theory of Cost - NPTEL 20.pdf · Opportunity Cost and Actual or Explicit Cost Accounting Cost Concepts The actual or explicit costs are those out-of-pocket costs of labour, materials,

20 : Theory of Cost - NPTEL 20.pdf · Opportunity Cost and Actual or Explicit Cost Accounting Cost Concepts The actual or explicit costs are those out-of-pocket costs of labour, materials,

Documents
Knowledge – Explicit, implicit and tacit: Philosophical ...Explicit knowledge is knowledge that the knower can make explicit by means of a verbal statement: ‘Someone has explicit

Knowledge – Explicit, implicit and tacit: Philosophical ...Explicit knowledge is knowledge that the knower can make explicit by means of a verbal statement: ‘Someone has explicit

Documents
MEGaVis: Perceptual Decisions in the Face of Explicit Costs and Benefits Michael S. Landy Julia Trommershäuser Laurence T. Maloney Ross Goutcher Pascal

MEGaVis: Perceptual Decisions in the Face of Explicit Costs and Benefits Michael S. Landy Julia Trommershäuser Laurence T. Maloney Ross Goutcher Pascal

Documents
Learning Objectives: Production Decisions and Costs in the Short Run LO1: Understand how and why economists measure costs differently from accountants

Learning Objectives: Production Decisions and Costs in the Short Run LO1: Understand how and why economists measure costs differently from accountants

Documents
An explicit dynamics extended finite element method. Part 2 ......An explicit dynamics extended finite element method. Part 2: element-by-element Stable-Explicit/Explicit dynamic

An explicit dynamics extended finite element method. Part 2 ......An explicit dynamics extended finite element method. Part 2: element-by-element Stable-Explicit/Explicit dynamic

Documents
Unit 5 - Cost Functions Explicit Costs and Implicit CostsExplicit Costs and Implicit Costs Explicit cost are out-of-pocket expenses, such as labor, raw

Unit 5 - Cost Functions Explicit Costs and Implicit CostsExplicit Costs and Implicit Costs Explicit cost are out-of-pocket expenses, such as labor, raw

Documents
Explicit Substitutions Calculi with Explicit Eta Rules - UnBayala/venturaayalakamareddine.pdf · Explicit Substitutions Calculi with Explicit Eta Rules ... 2 Explicit Substitutions

Explicit Substitutions Calculi with Explicit Eta Rules - UnBayala/venturaayalakamareddine.pdf · Explicit Substitutions Calculi with Explicit Eta Rules ... 2 Explicit Substitutions

Documents
Cost Theory and Estimation Dr Nihal Hennayake. 2 The Nature of Costs Explicit Costs – Accounting Costs Economic Costs – Implicit Costs – Alternative or

Cost Theory and Estimation Dr Nihal Hennayake. 2 The Nature of Costs Explicit Costs – Accounting Costs Economic Costs – Implicit Costs – Alternative or

Documents
MBA201a: Economic Costs. Professor WolframMBA201a - Fall 2009 Page 1 Economic versus accounting costs –We will discuss how economists and accountants

MBA201a: Economic Costs. Professor WolframMBA201a - Fall 2009 Page 1 Economic versus accounting costs –We will discuss how economists and accountants

Documents
Lecture 7 Production Cost and Theory of the Firmflash.lakeheadu.ca/~kyu/B5017/B7.pdf · Cost Structure of a Firm Production Costs Implicit and Explicit Costs Explicit costs are out-of-pocket

Lecture 7 Production Cost and Theory of the Firmflash.lakeheadu.ca/~kyu/B5017/B7.pdf · Cost Structure of a Firm Production Costs Implicit and Explicit Costs Explicit costs are out-of-pocket

Documents
chartered accountants western india chartered accountants western

chartered accountants western india chartered accountants western

Documents
nAmIB I A U n IVERS ITYexampapers.nust.na/greenstone3/sites/localsite/collect... · 2017-10-13 · Suppose that a business incurred implicit costs of $200,000 and explicit costs of

nAmIB I A U n IVERS ITYexampapers.nust.na/greenstone3/sites/localsite/collect... · 2017-10-13 · Suppose that a business incurred implicit costs of $200,000 and explicit costs of

Documents
Accountants often have to help customers find ways to cut costs and manage the bottom line

Accountants often have to help customers find ways to cut costs and manage the bottom line

Documents
Institute of Cost Accountants of India - Paper 10- …...DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 4 Total annual costs % of

Institute of Cost Accountants of India - Paper 10- …...DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 4 Total annual costs % of

Documents
Jensen Video Index Combined From 1 to 162...Statistics on Direct Litigation Costs, Insurance Costs & Accountants’ Legal Liability John Siliciano (Cornell Law School) How to Position

Jensen Video Index Combined From 1 to 162...Statistics on Direct Litigation Costs, Insurance Costs & Accountants’ Legal Liability John Siliciano (Cornell Law School) How to Position

Documents
Explicit Implicit Economic cost: total cost of choosing one action over another. (Explicit + Implicit costs) (explicit costs). Accounting costs: the actual

Explicit Implicit Economic cost: total cost of choosing one action over another. (Explicit + Implicit costs) (explicit costs). Accounting costs: the actual

Documents
10B11PD311 Economics Cost Theory and Estimation. 10B11PD311 Economics Cost of Production: Costs incurred on factor inputs Explicit Costs: Actual

10B11PD311 Economics Cost Theory and Estimation. 10B11PD311 Economics Cost of Production: Costs incurred on factor inputs Explicit Costs: Actual

Documents
Explicit Dynamics Chapter 6 Explicit Meshing

Explicit Dynamics Chapter 6 Explicit Meshing

Documents
Costs. Learning Objectives: Distinguish between explicit, implicit cost and economic cost. Distinguish between short-run and long- run cost. Distinguish

Costs. Learning Objectives: Distinguish between explicit, implicit cost and economic cost. Distinguish between short-run and long- run cost. Distinguish

Documents
ANSYS Explicit Dynamics - Highvec.netcae.highvec.net/files/4_Tutorials/ANSYS TUTORIALS...Explicit Dynamics: Meshing ANSYS Explicit Dynamics Explicit Dynamics: Meshing 1-2 ANSYS, Inc

ANSYS Explicit Dynamics - Highvec.netcae.highvec.net/files/4_Tutorials/ANSYS TUTORIALS...Explicit Dynamics: Meshing ANSYS Explicit Dynamics Explicit Dynamics: Meshing 1-2 ANSYS, Inc

Documents