Economics Essay Samples

- Explicit costs are those costs that are incurred and recorded in the financial statements. They are taken to be the cost of doing business, and incurred in the process of manufacturing or providing a service. For example, Cost of Labor, Material, Rent, Depreciation etc. Implicit costs are those costs that are incurred, but are not recorded. For example opportunity cost of capital by investing the funds in other businesses. Accounting profit is usually higher than the economic profits because it does not take into account the implicit costs of a business, because they are not the actual costs, but are opportunity costs of investing the funds elsewhere or doing a different business. Since it is not an actual cost, but an alternative return on the investment, it is not included in the financial statements, and are not recorded by the businesses.
- In a perfect competition all the firms are selling the product at the same price, and as a result consumer is indifferent about the quantity and price of goods. On the other hand, the monopolist is a price giver and has to give different prices to the consumers depending upon the number of units that he wants to sell. Since, a monopolist’s supplies curve the market supply curve it has to lower the prices in order to achieve the target sales. On the other hand, the supply of a perfectly competitive firm is only a small portion of the overall market by lowering the prices it is going to reduce its revenue. As a result, a monopolist can gain by lowering the prices, and increase his revenue, whereas the perfectly competitive industry loses out.