Implicit and Explicit Costs
Another name for explicit costs is opportunity costs of using resources owned:
TRUE/ FALSE
FALSE: Implicit costs are the opportunity costs of using resources owned.
Explicit costs: refer solely to monetary payments made by individuals.
Economic Profit = Total Revenue - ____________________
OR
= Accounting Profit - ________________
Total Revenue - (Implicit + Explicit Costs)
Accounting Profit - Implicit Costs
Reading Nook is a comic book store which charges $35/comic sold. If their total cost in sourcing comic books is $17,000, and they sell about 500 comics on average, what is their total profit?
Profit = Total Revenue - Total Cost
Total Cost = $17,000
Total Revenue = $35 * 500 = $17,500
Profit = $17,500 - $17,000 = $500
In the short run, as more and more units of a variable resource are added to a fixed resource, productivity decreases. This relationship describes _________________
The law of diminishing marginal returns
The sum of implicit and explicit costs is ________ cost
Economic Cost
All Marginal formulas, that is, marginal product, marginal cost, marginal revenue, follow the formula ______________
Marginal (Revenue/Cost/Product) =
Change in Total (Revenue/Cost/Product)
Change in Quantity
The operating cost of a firm per unit produced is $25. If the firm produces 9 units of X, and its total cost is $325, find its fixed cost.
-> To earn a profit, the firm must charge at least _______ as its price.
Fixed cost = $100
-> To earn a profit, the firm must charge at least $25 as its price.
In the short run, at least one factor of production is :
a. scarce
b. fixed
c. available
b. fixed
Charlie quits his job as an analyst where he receives a salary of $60,000/year to start a business. For his location, he rents a building for $550/month. Additionally, he takes $100,000 from his savings to cover his costs. Previously, Charlie received 5% interest from this money. What are Charlie's implicit and explicit cost?
Implicit = $60,000 + $5,000 = $65, 000
Explicit = 100,000 + 550 = $100, 550
All average formulas, that is, average product, average cost, average revenue, follow the formula ______________
Average (Revenue/Cost/Product) =
Total (Revenue/Cost/Product)
Total Quantity
If a company incurs a $120 cost at 4 units of production and a
$380 cost at 8 units of production, what is it's:
a. Marginal Cost
b. Average cost for each unit
c. Profit if it sells its products at $75 per unit
MC = (380-120)/ (8-4) = 260/4 = 65
AC @ 4 units = $120/4 = $30, AC @ 8 units = $380/8 = $47.5
Profit = (Price - ATC) * Quantity
= (75 - 30) * 4 = $180 @ 4 units
= (75 - 47.5) * 8 = $ 220 @ 8 units
If the total product is 80 at 5 units of labour and 130 at 15 units of labour. What is the marginal product ?
(130 - 80)/(15 -5) = 50/10 = 5 units
Miguel is an independent business owner. He recently left his job as a financial consultant with a Big 4 company (and pay of $165,000/year), to start his own consulting and financing firm. He used his savings of $5,000 to kick off his start-up. He also pays $400 as rent and $1500 to each of his 3 employees. If Miguel’s firm made up to $171,000 this year, what is his accounting profit?
= 171,000 - (5,000+ 400 + (3 * 1,500))
= 171,000 - (5,000 + 400 + 4,500)
= 171,000 - 9,900
= $161, 100
If Total Cost = Total Fixed Cost + Total Variable Cost
And Average Cost = Total Cost/Total Quantity
Find Average Fixed Cost
Average fixed cost = Total Fixed Cost/ Quantity
The lowest cost curve in a graph is the __________
Fixed Cost Curve
Total Product continues to rise as long as Marginal Product is:
_____________ (increasing/decreasing/positive/negative)
Positive, even if it is decreasing
Miguel is an independent business owner. He recently left his job as a financial consultant with a Big 4 company (and pay of $165,000/year), to start his own consulting and financing firm. He used his savings of $5,000 to kick off his start-up. He also pays $400 as rent and $1500 to each of his 3 employees. If Miguel’s firm made up to $171,000 this year, what is his economic profit?
Economic Profit = Accounting Profit - Implicit Costs
= 161,100 - 165,000
= -3,900
The cost curve that is a straight horizontal line is the ___________
Fixed cost curve
Zero Economic Costs occurs when ___________
Accounting Profits = Implicit Costs
The following numbers represent the total product of a firm as labor increments from 1 to 4: 16, 36, 60, 82. At which point does Marginal Product being to fall.
1 -> 16
2 -> 20
3 ->24
4-> 22 ----- at the fourth worker