Define opportunity cost, does every business choice have an opportunity cost and give an example of a business practice with an economic cost that is different than its accounting cost

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  Explain by contrasting accounting and economic costs. 3- You have a choice of opening your own business or being employed by someone else in a similar type of business.

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  For example, let's say that an organization makes $100 of sales and the net profit after deducting cost of sales is $50. Now, the accounting profit is $50.

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  When we choose an alternative, the opportunity cost of that alternative is the economic value of sacrificed benefit. A consumer faces this situation in his day to day activities.

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  Hence economic profit is revenue minus all opportunity cost -- most that are explicit accounting expenses and others that are implicit cost.

• Implicit Costs: Impact on Value of Economic Profit

  The implicit cost is the cost that the owner has to give up the next best when he is doing this business. For example, Owner has to use his own saving to invest in this business. He has to give up the interest from that saving.

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  To cut my lawn, I have to give up time watching television. Clearly I have lower opportunity costs than Mr. Gates, and his tradeoffs are much different. Remember that opportunity cost is the value, monetary or implied, of the next best alternative.

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  Since the economic profit also includes all the costs along with the cost of capital, so the concept of EVA is that capital used in business has a cost and if there are earnings more than the cost of capital then a value for shareholders is created.

• What are some examples that lead to economic profit or loss, but not necessarily a recognizable event for accounting purposes?

  Hence economic profit is revenue minus all opportunity cost -- most that are explicit accounting expenses and others that are implicit cost.