Can economic cost be higher that accounting cost. Explain with example.
Solution
Accounting cost refers to all the costs that are incurred in order to run a business. They are also known as explicit costs.
On the other hand economic costs is the sum of accounting cost and the opportunity costs
Clearly economic costs are higher than the accounting cost.
For eg ram wants to start a business and to start a business he needs raw material of Rs. 10000 . In addition to this he has to leave his employment which gives him Rs. 2000 per month
In this case accounting cost is Rs 10000
Where as economic cost is Rs. (10000+12000 ) i.e. Rs 22000
Accounting cost refers to all the costs that are incurred in order to run a business. They are also known as explicit costs.
On the other hand economic costs is the sum of accounting cost and the opportunity costs
Clearly economic costs are higher than the accounting cost.
For eg ram wants to start a business and to start a business he needs raw material of Rs. 10000 . In addition to this he has to leave his employment which gives him Rs. 2000 per month
In this case accounting cost is Rs 10000
Where as economic cost is Rs. (10000+12000 ) i.e. Rs 22000