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INCREASING RETURNS TO SCALE: A given proportionate increase in all resources in the long run results in a proportionately greater increase in production. Increasing returns to scale exists if a firm increases ALL resources -- labor, capital, and other inputs -- by 10%, and output increases by more than 10%. You might want to compare decreasing returns to scale and constant returns to scale.
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                           ACCOUNTING COST: An actual outlay or expenses incurred in the production of a good that shows up in a firm's accounting statements and records. Accounting cost is an explicit payment (that is, money changing hands) incurred by a firm. Accounting cost, while very important to accountants, company CEOs, shareholders, and the Internal Revenue Service, is only minimally important to economists. The reason is that economists are more interested in economic cost (also called opportunity cost), which is the value of foregone production. Accounting cost is essentially an out-of-pocket, explicit payment that generally compensates the resources used by a firm for the opportunity cost incurred in production. A worker like Phoebe Pankovic, for example, might be paid $10 an hour to produce Wacky Willy Stuffed Amigos (those cute and cuddly armadillos and tarantulas) to compensate for the $10 worth of other goods she is NOT producing at another job. That is, Phoebe could be producing $10 worth of Hot Momma Fudge Bananarama Ice Cream Sundaes rather than Wacky Willy Stuffed Amigos. This $10 hourly expense is an accounting cost of the firm that is also compensation for the economic cost of the worker.However, an economic cost need not be an accounting cost and vice versa. - Economic Cost, No Accounting Cost: In some cases, the resources used by a firm for production incur an economic cost without an explicit payment showing up on the official accounting records. One of the more important examples, especially when the topic turns to the analysis of short-run production, is normal profit. The entrepreneurs of a firm incur the opportunity cost of foregone profit from another business activity, but this is never considered an accounting cost.
- Accounting Cost, No Economic Cost: Alternatively, an accounting cost incurred by a firm might not be paid as compensation for an economic cost. Suppose for example, that Phoebe Pankovic receives an hourly wage of $10 to produce Wacky Willy Stuffed Amigos. However, her opportunity cost, the value of Hot Momma Fudge Bananarama Ice Cream Sundaes production foregone is only $7. In this case only $7 of the accounting cost corresponds to an economic cost. The remaining $3 is an accounting cost that is not compensation for any economic cost. In effect, this extra $3 is actually part of the economic profit of the firm that is received by the worker rather than the entrepreneurs.
 Recommended Citation:ACCOUNTING COST, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2023. [Accessed: December 1, 2023]. Check Out These Related Terms... | | | | | Or For A Little Background... | | | | | | | | | | | And For Further Study... | | | | | | | | | | Related Websites (Will Open in New Window)... | | |
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PURPLE SMARPHIN [What's This?]
Today, you are likely to spend a great deal of time watching the shopping channel hoping to buy either a pair of handcrafted oven mitts or a coffee table shaped like the state of Florida. Be on the lookout for malfunctioning pocket calculators. Your Complete Scope
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Parker Brothers, the folks who produce the Monopoly board game, prints more Monopoly money each year than real currency printed by the U.S. government.
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"Sometimes our light goes out, but is blown into flame by another human being. Each of us owes deepest thanks to those who have rekindled this light. " -- Albert Schweitzer, missionary physician
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DBD Declining Balance Depreciation
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