Apparently we did study different texts. For reference the book I'm using is: Microeconomics Principles, Problems, and Policies. 14th edition. by McConnell & Brue.
I said "total costs". Chapter 9 "Costs of Production", Page 165 "Explicit and Implicit Costs", forth paragraph, last sentence: "To the firm, implicit costs are the money payments the self-employed resources could have earned in their best alternative use." Self-employed resources are those resources the firm already owns, etc. In other words Total Costs include the loss of income you would have recieved if you had invested your money in your "best possible alternative". If you had to borrow the money then the interest payments would be consider "explicit costs" and would likewise be part of your total costs. Furthermore, you would still have the 'implicit costs" of not investing the borrowed money in the best possible alternative. P.S. Which book(s) were you using that didn't include implicit costs as part of total costs? keith bierman wrote: > From: Peter VanDerWal <[EMAIL PROTECTED]> > Subject: EV1 economics (was Re: No more Ford Th!nk EV) > >>Let's assume I spend $1 million on R&D. Bye-bye, the money is spent and >>gone. Now let's say that R&D has developed a product that will cost me >>$1 million per year to manufacture (total costs) and will return >>$1,000,010 per year. Do I go into production? Well yes, from a purely >>economic point of view that's $10 profit. Does the $1 million I spend >>on R&D have any effect on that profit? Nope. Do I not go into >>production because it's such a small profit? Perhaps, but that's a >>person call and not an economic one, after all I'd be throwing away $10 >>a year. >> > >You must have studied different economics texts than I. Given a >universe of potential investments, of which your projected $10 >return on a million dollar investment is just one, classic economic >theory suggests that the "proper" algorithm is to rank all of the >potential investments and to select the subset which provides the >best rate of return. > >Unless you have infinite capital, the $10 return on a million dollar >investment is likely to be at the bottom of the heap (with infinite >capital, it's not a great idea, but you get to the bottom of the >list before running out of capital ;>). > >>Any and all costs spent in the past have zero bearing on whether or not >>a project is economically viable from this point forward. >> > >To an economist yes. To an accountant no. Given the twisted tax laws >in most countries, it may well be the case that a strategic time to >take a loss and a "write down" may be more valuable than a high >capital investment with a low rate of return. > > >>Because this is a free country. I'm intitled to my opinions. >> > >Indeed. Absolutely. Including the right to make up your own >spellings ;> > >
