Reply to the following prompts by using the company for which you currently work, a business with which you’re familiar, or the dream business you want to start:
- Do you think it’s easy for your selected business to enter this same industry?
- What are some key fixed, variable, implicit, and/or opportunity costs?
Discuss with your peers:
- Read one of your peer’s posts and share another idea for a type of cost.
Please read the course materials before answering the discussion question! This week, you should consider the company for which you currently work, a business with which you are familiar, or the dream business you want to start in order to address the following two issues.
First, you should explain why you think it is or not, easy for your selected business to enter this same industry
Second you should explain what some key fixed, variable, implicit, and/or opportunity costs are
When addressing the issues raised by this week’s discussion, keep in mind that fixed costs (FC) are costs that do not vary with the quantity produced and variable costs (VC) are costs that vary with the quantity produced. The variable costs change as output increases and represent additional labor and materials required to produce more units. Implicit costs represent the opportunity cost of using resources already owned by the firm. Explicit costs are out-of-pocket costs like payments that are actually made; for example, wages that a firm pays its employees or rent that a firm pays for its office are explicit costs. Often for small businesses, they are resources contributed by the owners; for example, working in the business while not getting a formal salary or using the ground floor of a home as a retail store.
Class: What is the difference between economic profit and accounting profit?
ALSO RESPONSE TO THIS POST:
I don’t think it would be easy for my wireless business to enter into the same industry today. There is too much competition, and there would be no economic profit. We are a service industry so we can’t be measured on units produced but on service sold. If we were trying to start as a brand new wireless business; our fixed costs would be astronomical, and it would take many years before we could even see a profit and maybe never see an economic profit. We would have to build our infrastructure of cell towers, stores, and call centers and to hire and train employees. Our variable costs would be lowered/changed with the number of customers that we activated and retained on our service. Implicit costs would be paying our new employees to through training while not seeing any return on our investment as they are not yet servicing our customers and adding revenue. New wireless companies that pop up today have low costs plans to lure customers to buy into their service, they can do this because they have low overhead costs. These new companies don’t own their towers; they co-locate on other companies cell towers. They don’t hire employees in the United States to take their customer service calls; they outsource to other countries. We pride ourselves in providing excellent service and customer service. We don’t want to start over as the little guy making promises we can’t live up to or meet.