BUS 207 Chapter 6: Chapter 6 Vocab and Notes

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 207
• Professor: Karen Ruckman

Document Summary

In deciding among different courses of action, the manager need only consider the differential revenues and costs of the alternatives. The only relevant costs are those that differ across alternative courses of action. The opportunity cost associated with choosing a particular decision is measured by the benefits forgone in the next-best alternative. Opportunity costs for goods, services or inputs often are determined by market prices. The basic rule for optimal decision making is: Undertake a given course of action if and only if its incremental benefits exceed its incremental costs (including opportunity costs). Profit is the difference between revenues and costs. Accounting profit is the difference between revenues obtained and expenses incurred. With respect to managerial decision making, the accounting measure does not present the complete story concerning profitability. Economic profit is the difference between revenues and all economic costs (explicit and implicit), including opportunity costs. It involves costs associated with capital and with managerial labour.