What is the difference between accounting cost and economic cost?
What will be an ideal response?
Accounting cost measures only the out-of-pocket costs of production. Economic cost includes both out-of-pocket costs and the full opportunity costs of all the factors of production. Economic cost includes a normal rate of return on capital.
You might also like to view...
Refer to Figure 3-1. If the product represented is a normal good, a decrease in income would be represented by a movement from
A) A to B. B) B to A. C) D1 to D2. D) D2 to D1.
Suppose that the firms in the perfectly competitive oat industry currently are receiving a price of $2 per bushel for their product. The minimum possible average total cost of producing oats in the long run is $1 per bushel. It follows that:
A. the price of oats will remain at $2 per bushel in the long run. B. the oat industry is in equilibrium. C. firms in the oat industry will earn economic profits in both the long run and the short run. D. new firms will enter the oat industry.