ECO 112-Assignment

ECO 112-Assignment

Student’s Name:

Institution:

American First Ladies

1-Opportunity cost refers to the value of best forgone alternative in a situation where an individual must make choice on two or more alternatives, usually mutual exclusive alternatives where the resources are limited. In a case where the best choice is made, the opportunity cost becomes the cost realized by not enjoying the benefit that would have come by, going with or considering the second best choice. It also refers to the loss of potential gain from other alternatives, when a certain alternative is chosen over the other. It is a very important concept in economics which expresses the mutual relationship between scarcity and choice. Opportunity cost is so wide that it does not only consider or restricted to the monetary or financial value but also the real cost of the output foregone, pleasure, as well as time lost and other utility providing benefits.

For instance, if milk costs $4 every gallon and bread $2 every loaf, then the relative cost of milk is 2 chunks of bread. In the event that a buyer goes to the supermarket with just $4 and purchases a gallon of milk with it, then one can say that the opportunity expense of that gallon of milk was 2 pieces of bread, expecting that bread was the following best option. Therefore, If Bob’s bagel store earns $100,000 per year in profit and Bob’s opportunity cost is $110,000 running the Greasy Spoon Diner, Bob should not stay in the business but run a Greasy spoon Diner.

2-

• Hero’s accounting profit would be the out of pocket expenses of materials and travelling expenses also known as the explicit costs of accounting, deducted from the total revenue. Therefore his accounting profit would be as follows:

$100+$57000= $57100

The total revenue collected was $100000. Therefore his accounting profit would be:

$100000-$57100= $42900

• Hero’s economic profits also known as implicit costs, explicit costs or accounting costs will be the forgone opportunities Hero will be giving up by working in his business instead of working as an accountant teacher plus the foregone interest he would be earning from the sale of the computer.

Therefore it would be $50000+$100=$50100

By subtracting $50100 from the implicit cost $42900 we get negative $7200. This means that hero could earn additional $7200 if he shut his business and worked as accountancy teacher at the college.

3- When I factor is fixed capital diminishing returns will occur in the short run. If the variable factor of production is increased, there will be a point where it will be producing less or other it will become less productive. This will lead to a decreasing marginal followed by average product. For example in a situation where capital is fixed, extra workers step on the ways of other workers already inside as there will be an attempt to increase production. If for example extra workers are employed in a small café, production increases but very slowly. The law of diminishing marginal returns only implies in the short run because in the long run all factors are variable. A decent sample of diminishing returns incorporates the utilization of fertilizer- a little amount prompts an enormous increment in yield. On the other hand, expanding its utilization further may prompt declining Marginal Product (MP) as the viability of the chemical declines or decays.

4-with additional production, the average fixed cost decreases and there is relatively simple logic behind this. We all know that because fixed cost is FIXED and the quantity of output is not affected by this, as quantity increases a given cost is spread more thinly per unit. For example if only 100 units are produced, 1000 dollars averages out to 10 dollars per unit. However if 10000 units were to be produced it would mean that the average shrinks to only 10 cents per unit. I also think that there is adoption of economies of scale under with decreasing average fixed cost in production. When a firm is in a position to produce more, it will reduce the cost of its products and services.

5- Economists consider fixed costs, overhead costs and indirect costs as expenses incurred by the business that are not dependent on the level of goods and services that the business produces. They are expenses such as rent or salaries that are to be met per month meaning they are time related. In the long run of a business there are no f.............