Unit 3

Question 1

Accounting Costs

Answer 1

the explicit or “out of pocket” payments paid by firms to use resources for production process

Question 2

Economic Costs

Answer 2

sum of both implicit costs and explicit costs (out of pocket & opportunity costs)

Question 3

Accounting Profit

Answer 3

total revenue - accounting costs

Question 4

Economic Profit

Answer 4

total revenue - economic costs

(both opportunity costs & out of pocket costs)^

Question 5

Fixed Cost

Answer 5

the costs of fixed resources which do not change with the output produced

(e.g. rent doesn’t increase the more products you produce0