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ECONOMICS FOR MANAGERS

PSG INSTITUTE OF MANAGEMENT MBA 2011-13 BATCH I Trimester


Session X- For Batch C and D Profit
1 EFM Faculty P.Uday Shankar 14/09/11

Economic Cost of Using ResourcesOpportunity Cost The Opportunity Cost of using any kind of resource is what the owners of a business must give up to use the resource.
This is what you have already seen about Opportunity Cost
When you have more than one resource and have to choose one, the others have to be left out. Choice involves sacrifice. Opportunity Cost is the cost of an item measured in terms of the alternatives foregone. EFM Faculty P.Uday Shankar 14/09/11

Economic Cost of Using ResourcesResources of a Firm


Firms utilise two types of inputs or resources:1.Market Supplied Resources are resources owned by others and hired, rented or leased by the firm. Eg. Labour, raw materials, capital equipment rented or leased, land leased in, security services, electricity etc. 2. Owner Supplied Resources are resources owned and used by a firm. Eg. Money, time and labour services EFM Faculty P.Uday Shankar 14/09/11 are the main resources, apart from

Economic Cost of Using ResourcesTotal Economic Cost


The firm incurs Opportunity Cost for utilisation of both types of the resources.

Total Economic Cost of resources used in production by a firm is the sum of Market Supplied Resources and Owner Supplied Resources.
The opportunity cost of market supplied resources is in terms of money paid out and is called Explicit Cost. Explicit Cost is the monetary opportunity cost of using market supplied resources. The opportunity cost of owner supplied resources is the best return the owners of the firm could have received had they taken their resource to the market instead of using it themselves and is called Implicit Cost. EFM Faculty P.Uday Shankar 14/09/11 Implicit Cost is the non-monetary cost of using owner

Economic Cost of Using ResourcesEconomic Profit


Economic Profit is the difference between Total Revenue and Total Economic Cost. ECONOMIC PROFIT=TOTAL REVENUE- TOTAL ECONOMIC COST. ACCOUNTING PROFIT=TOTAL REVENUEEXPLICIT COSTS. The GAAP (generally accepted accounting practices)rules do not permit accountants to deduct most type of implicit costs for the purpose of calculating taxable accounting profit.
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Economic Cost of Using Resources


Exercises from the text book

EFM Faculty P.Uday Shankar

14/09/11

Profits
Discussion on : Triple Bottom Line concept of Profit, Planet and People. Profits and sustainable development- should nonprofits in business make profits? How should it be accounted? Tax implications.
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Thanks

EFM Faculty P.Uday Shankar

14/09/11