ECO 1304 Chapter Notes - Chapter 7: Sunk Costs, Opportunity Cost, Marginal Cost

86 views2 pages

greygrasshopper518

18 Dec 2016

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Opportunity cost: the cost of producing a good measured by the worth of the most valuable alternative that was given up. Explicit costs: the opportunity costs of production that require a monetary payment. The out-of-pocket expenses for labour services, raw materials, fuel, transportation, utilities, advertising, and so on. Implicit costs: the opportunity costs of production that do not require a monetary payment. Accountants do not include implicit costs whereas eco(cid:374)o(cid:373)ists" do. Economic profits equal total revenue minus economic costs (explicit plus implicit costs). Accounting profits equal total revenue minus accounting costs (explicit costs). Zero economic profit means that the firm is covering both explicit and implicit costs. Total revenue is sufficient to compensate for the time and money. Economists consider a zero economic profit a normal profit. Sunk costs are costs that have already been incurred and cannot be recovered. They are irrelevant for any future decisions because you will never get back to them.

Related Questions

Accounting profit is equal to total revenue minus the explicit cost of producing goods and services while economic profit is the difference of total revenue minus the sum of both explicit and implicit costs. Therefore, the economic profit

1. is always at least as large as accounting profit if the implicit cost is greater than zero.

2. is always less than accounting profit if the implicit cost is greater than zero.

3. will always exceed accounting profit.

4. will always equal to accounting profit.

orchidrabbit535

26. To the economist total cost includes

A. explicit and implicit costs.

B neither implicit nor explicit costs.

C. implicit, but not explicit, costs.

D. explicit, but not implicit, costs.

27. Accounting profits are typically

A. greater than economic profits because the former do not take explicit costs into account

B. equal to economic profits because accounting costs include all opportunity costs.

C. smaller than economic profits because the former do not take implicit costs into account.

D. greater than economic profits because the former do not take implicit costs into account.

28. Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

A. $100,000 and its economic profits were $0.

B. $200,000 and its economic profits were $0.

C. $100,000 and its economic profits were $100,000.

D. $0 and its economic loss was $200,000.

29. The basic difference between the short run and the long run is that

A. all costs are fixed in the short run, but all costs are variable in the long run.

B. the law of diminishing returns applies in the long run but not in the short run.

C. at least one resource is fixed in the short run, while all resources are variable in the long run.

D. economies of scale may be present in the short run but not in the long run.

30. The law of diminishing returns indicates that

A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

B. because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped.

C. the demand for goods produced by purely competitive industries is downsloping.

D. beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.