The following table shows the end of the year account entries of a small company Item Amount ($) Total Revenue 560,000.00 Wages and Salaries 420,000.00 Ingredients and Materials 50,000.00 Interest paid 10,000.00 Other Payments 10,000.00 Forgone Salary 60,000.00 Forgone rent 12,000.00 Forgone interest 4,500.00 a. According to the above information calculate the following: I. Implicit and explicit cost II. Economic profit and normal profit/loss b. Briefly explain the following economic concepts with appropriate examples I. Economies of scale and diseconomies of scale II. Law of diminishing marginal returns and increasing marginal returns
The following table shows the end of the year account entries of a small company
|
Item |
Amount ($) |
|
Total Revenue |
560,000.00 |
|
Wages and Salaries |
420,000.00 |
|
Ingredients and Materials |
50,000.00 |
|
Interest paid |
10,000.00 |
|
Other Payments |
10,000.00 |
|
Forgone Salary |
60,000.00 |
|
Forgone rent |
12,000.00 |
|
Forgone interest |
4,500.00 |
a. According to the above information calculate the following:
I. Implicit and explicit cost
II. Economic profit and normal
b. Briefly explain the following economic concepts with appropriate examples
I. Economies of scale and diseconomies of scale
II. Law of diminishing marginal returns and increasing marginal returns
Implicit costs are those costs which does not include any payment of money and includes the cost of next alternative forgone.
Explicit costs are those costs which includes payment of money.
Economic profit= Total Revenue - Explicit cost - Implicit cost
Normal profit= Total revenue - Explicit costs
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