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ECONOMIC vS. ACCOUNTING COSTS The cost curves we observed here are based on real production relationships. The dollar costs we compute are a direct reflection of underlying resource costs: the land, labor, and capital used in the production process. Not everyone counts this way. On the contrary, ac- countants and businesspeople typically count dollar costs only and ignore any resource use that doesn't result in an explicit dollar cost. Return to Low-Rider Jeans for a moment to see the difference. When we computed the dollar cost of producing 15 pairs of jeans per day, we noted the following resource inputs: COST PER DAY $100 INPUTS 1 factory rent 1 machine rent 1 machine operator 20 80 1.5 bolts of denim 45 Total cost $245 The total value of the resources used in the production of 15 pairs of jeans was thus $241 per day. But this figure needn't conform to actual dollar costs. Suppose the owners of Low Rider Jeans decided to sew jeans themselves. Then they wouldn't have to hire a worker an pay $80 per day in wages. Explicit costs-the dollar payments-would drop to $165 per da The producers and their accountant would consider this a remarkable achievement. Th might assert that the cost of producing jeans had fallen.

ECONOMIC vS. ACCOUNTING COSTS The cost curves we observed here are based on real production relationships. The dollar costs we compute are a direct reflection of underlying resource costs: the land, labor, and capital used in the production process. Not everyone counts this way. On the contrary, ac- countants and businesspeople typically count dollar costs only and ignore any resource use that doesn't result in an explicit dollar cost. Return to Low-Rider Jeans for a moment to see the difference. When we computed the dollar cost of producing 15 pairs of jeans per day, we noted the following resource inputs: COST PER DAY $100 INPUTS 1 factory rent 1 machine rent 1 machine operator 20 80 1.5 bolts of denim 45 Total cost $245 The total value of the resources used in the production of 15 pairs of jeans was thus $241 per day. But this figure needn't conform to actual dollar costs. Suppose the owners of Low Rider Jeans decided to sew jeans themselves. Then they wouldn't have to hire a worker an pay $80 per day in wages. Explicit costs-the dollar payments-would drop to $165 per da The producers and their accountant would consider this a remarkable achievement. Th might assert that the cost of producing jeans had fallen.

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter7: Production, Costs, And Industry Structure
Section: Chapter Questions
Problem 42P: A small company that shovels sidewalks and driveways has 100 homes signed up for its services this...
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ECONOMIC VS. ACCOUNTING COSTS The cost curves we observed here are based on real production relationships. The dollar costs we compute are a direct reflection of underlying resource costs: the land, labor, and capital used in the production process. Not everyone counts this way. On the contrary, ac- countants and businesspeople typically count dollar costs only and ignore any resource use that doesn't result in an explicit dollar cost. Return to Low-Rider Jeans for a moment to see the difference. When we computed the dollar cost of producing 15 pairs of jeans per day, we noted the following resource inputs: INPUTS COST PER DAY $100 1 factory rent 1 machine rent 1 machine operator 20 80 1.5 bolts of denim 45 Total cost $245 The total value of the resources used in the production of 15 pairs of jeans was thus $245 per day. But this figure needn't conform to actual dollar costs. Suppose the owners of Low- Rider Jeans decided to sew jeans themselves. Then they wouldn't have to hire a worker and pay $80 per day in wages. Explicit costs-the dollar payments-would drop to $165 per day. The producers and their accountant would consider this a remarkable achievement. They might assert that the cost of producing jeans had fallen.
Transcribed Image Text:ECONOMIC VS. ACCOUNTING COSTS The cost curves we observed here are based on real production relationships. The dollar costs we compute are a direct reflection of underlying resource costs: the land, labor, and capital used in the production process. Not everyone counts this way. On the contrary, ac- countants and businesspeople typically count dollar costs only and ignore any resource use that doesn't result in an explicit dollar cost. Return to Low-Rider Jeans for a moment to see the difference. When we computed the dollar cost of producing 15 pairs of jeans per day, we noted the following resource inputs: INPUTS COST PER DAY $100 1 factory rent 1 machine rent 1 machine operator 20 80 1.5 bolts of denim 45 Total cost $245 The total value of the resources used in the production of 15 pairs of jeans was thus $245 per day. But this figure needn't conform to actual dollar costs. Suppose the owners of Low- Rider Jeans decided to sew jeans themselves. Then they wouldn't have to hire a worker and pay $80 per day in wages. Explicit costs-the dollar payments-would drop to $165 per day. The producers and their accountant would consider this a remarkable achievement. They might assert that the cost of producing jeans had fallen.
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