Identify the Types of Compensation Policies That Are Appropriate for Firms

question 44

Essay

Identify the types of compensation policies that are appropriate for firms pursuing a cost-leadership strategy.

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Definitions:

Implicit Costs

Indirect, non-out-of-pocket expenses which represent the opportunity costs of using resources owned by the firm for its operations.

Accounting Profit

The difference between total revenue and explicit costs.

Economic Profit

The difference between total revenue and total costs, including explicit and implicit costs.

Implicit Costs

The opportunity costs of using resources that a firm already owns to produce goods or services instead of earning money from these resources elsewhere.