The flashcards below were created by user
Anonymous
on FreezingBlue Flashcards.

Opportunity Cost
Its the sum of explicit cost and implicit cost

Explicit cost
actual outlay of money

implicit cost
forgone value of best alternative activity

Accounting profit
business's revenue minus explicit costs and depreciation

Economic profit
business's revenue minus Opp Cost of its resources

Marginal Analysis
 Relevant to "how much" decisions
 Its an analysis at edge, comparing additioal benefit to additional cost of one more unit of consumption (or production)

Marginal benefit
the additonal benefit earned by consuming (producing) one more unit of g/s
MB of Babett decreases as the wingportion size increases since customers are willing to pay less additional amount of money for each additional chicken wing included in the serving.

marginal cost
the additonal cost incurred by consuming (producing) one more unit of g/s

Optimal Quantity
 its the quantity that generates the maximum possibe total net gain
 and the total et gain i maximized when Marginal Benefit = Marginal
 Equivalently, it is the quantity at which marginal benefit and marginal cost curves intersect.

Do we care about sunk cost?
 sunk cost: a cost that has already been incurred and nonrecoverable
 Sunk cost should be ignored in decisions about future actions (opportunity cost)

Present Value
 What is $X realized t years in the future worth today?
 $V x (1+r) t = $X
 $V = $X/ (1+ r)t
 where $V is the present value f $x realized t years in the future at r, the annual interest rate

Nwt present Value (=NPV)
NPV of a project is the present value of current and future benefits  the presen value of current and future costs

