MJ Industries

Introduction In today's discussion, we will explore the differences between explicit and implicit costs, explain how profit is calculated, define sunk costs, and discuss the distinctions between short-run and long-run periods. Additionally, we will examine how production costs behave in both the short run and long run, including an overview of average product (AP) and marginal product (MP) in these periods. Explicit vs. Implicit Costs Explicit Costs: Explicit costs are direct, out-of-pocket expenses paid by firms to purchase resources. Examples include wages, rent, and the cost of raw materials. These are cash costs that are easily identifiable in accounting records. Implicit Costs: Implicit costs represent the opportunity costs of using resources owned by the firm. They include foregone wages, foregone interest, and entrepreneurial income that could have been earned if the resources were employed in the next best alternative. These costs are not direct cash payments but are crucia...