Chapter 8 study questions

Chapter 8 study questions - Rahim Spencer ECON 203 10/23/09...

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Unformatted text preview: Rahim Spencer ECON 203 10/23/09 Chapter 8 Study Questions 1. Explicit costs are costs that firms make to those who supply their resources. These include cost such as rents, materials, and transportation. Implicit costs are a firms op- portunity costs of using its self-owned, self-employed resources. These are things such as entrepreneurial ability. Explicit costs of attending college are tuition, room and board, and supplies. Implicit costs of attending college are the opportunity costs of working as opposed to going to college, and the costs of attending a college with cheaper/more ex- pensive tuition. Normal profit is classified as a cost because it is the cost of a persons entrepreneurial ability. Economic profits are not considered costs of production because the entrepreneur still gains his/her normal profit; economic costs are the sum of explicit and implicit costs, which includes the entrepreneurs normal profit. 2. Total sales Revenue............................... $72,000 Helpers Salary.............................. $12,000 Rent............................................... $5,000 Materials........................................ $20,000 Total Explicit Costs......................... $37,000 Accounting Profit............................ $35,000 Accounting Profit........................................ $35,000 Forgone Interest............................. $4,000 Forgone Wages.............................. $15,000 Forgone Entrepreneurial Income... $3,000 Total Implicit Costs......................... $22,000 Economic Profit......................................... $13,000 3. a. Long-run adjustment b. Short-run adjustment c. short-run adjustment d. short-run adjustment 4. Inputs of Labor Total Product Marginal Product Average Product 1 15 15 15 2 34 19 17 3 51 17 17 4 65 14 16.25 Inputs of Labor Total Product Marginal Product Average Product 5 74 9 14.8 6 80 6 13.33 7 83 3 11.86 8 82-1 10.25 The marginal product first rises because it is increasing at an increased rate, as reflec-...
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Chapter 8 study questions - Rahim Spencer ECON 203 10/23/09...

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