Could somebody explain why(how) profit is trated as an implicit cost? Thanks a lot K
I also get confuse of defining implicit cost as well. For example: I have joined an financial class recently and I had to pay 10UDS for daily lesson. Today, lecturer gives lesson of ethnics but I decided to stay at home to self-study (because i feel self-study is much more effective than class). During self-study time at home, i saw yr question about implicit cost in this forum, i immediately change my attention to implicit cost topic not ethnics topic. 10 USD is sunk cost. My opportunity cost of joining yesterday class is my benefit from self-study. My implicit cost of discussing with u in forum is my temporary self-study delayed. Implicit cost cannot be counted in terms of cash, then profit cannot be traded in this case. Have i right understanding?
Thu Thuy Wrote: ------------------------------------------------------- > I also get confuse of defining implicit cost as > well. > > For example: > > I have joined an financial class recently and I > had to pay 10UDS for daily lesson. Today, lecturer > gives lesson of ethnics but I decided to stay at > home to self-study (because i feel self-study is > much more effective than class). During self-study > time at home, i saw yr question about implicit > cost in this forum, i immediately change my > attention to implicit cost topic not ethnics > topic. > > 10 USD is sunk cost. > > My opportunity cost of joining yesterday class is > my benefit from self-study. > > My implicit cost of discussing with u in forum is > my temporary self-study delayed. > > Have i right understanding? The $10 daily fee is an explicit cost to you. To learn “something else”, you give up the lecture on Ethics. If you could quantify the gain you would have had by attending the ethics class is the opportunity cost of learning that "something else” and that is an implicit cost; you gave up the benefit of learning ethics to learn “something else” > Implicit cost cannot be counted in terms of cash, > then profit cannot be traded in this case. > I believe, in order to decide the economic profitability of something, you have to give a dollar value to implicit costs. But my confusion is how a normal profit can be treated as implicit cost as described in Schweser VCD.
A normal profit of an alternative activity would be something you give up to pursue something else.
Implicit cost is kind of intangible cost. I don’t know exactly if GAAP rules regulate it related to normal profit or not.
Thu Thuy Wrote: ------------------------------------------------------- > Implicit cost is kind of intangible cost. I don’t > know exactly if GAAP rules regulate it related to > normal profit or not. I got it. Somehow I was thinking the Normal profit as the profit from the current activity rather the forgone activity. Normal profit = the profit I would have made in another activity utilizing my organizational, entrepreneurial and decision-making skills. So, when I attempt on the current activity, I give up profit from the forgone activity; hence an implicit cost.
Hi Kochunni, There an explain in website may be help: http://www.investopedia.com/terms/a/accountingprofit.asp Normal profit u mentioned exactly be accounting profit. I think it is clear in definition but still get mess when face actual case It’s nice if u have any learning source sharing with me!
Normal profit is nothing but accounting profit. My confusion was why normal profit is treated as an implicit cost while calculating economic profitability.
It is an implicit cost because it is the profit you forfeit by NOT doing some other activity. If you are having a problem with the concept, read up more on opportunity costs (which are purely economic costs and NOT accounting expenses).