5% per year) in her business. You are given the following information about the first year of her operations.Total revenue$120,000Cost of labor40,000Cost of materials15,000Equipment rental5,000a.Calculate her economic costs.b.Calculate her accounting costs.c.Calculate her implicit costs.d.Sally tells you that she would really like to move to a location closer to town but she decided against itbecauseʺright now I donʹt pay any rent and it will cost me $10,000 a year to rent near town.ʺDo you agree withher reasoning?Answer: a.$121,000=40,000 (labor)+15,000 (materials)+5,000 (equipment)+10,000 (opportunity cost ofbuilding)+1,000 (5% of 20,000, the opportunity cost of her savings)+50,000 (opportunity cost of Sallyʹslabor)b.$60,000=40,000 (labor)+15,000 (materials)+5,000 (equipment)c.$61,000=10,000 (opportunity cost of building)+1,000 (5% of 20,000, the opportunity cost of hersavings)+50,000 (opportunity cost of Sallyʹs labor)d.No. Although she does not incur a monetary cost for her garage space now, it is an opportunity costand part of the economic cost of doing business. Sally could just as well rent her space out now, collectthe rent and move closer to town.Diff: 2Page Ref: 356-357/356-357Topic: Explicit and Implicit CostsLearning Outcome: Micro 12: Apply methods for measuring and analyzing the effects of inputs and costs on the supplycurveAACSB: Analytic SkillsMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.41) The marginal product of labor is defined asA) the change in total revenue that results when an additional unit of a labor is hired.B) the change in output that a firm produces as a result of hiring one more worker.C) the additional labor required to produce one more unit of output.D) the additional labor cost of producing one more unit of output.Answer: B41)Diff: 1Page Ref: 359/359Topic: Marginal Product of LaborLearning Outcome: Micro 20: Apply the concepts of opportunity cost, marginal analysis, and present value tomake decisionsAACSB: Reflective Thinking11
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