Question

4. Give an example of an implicit opportunity cost, based on observation in your daily life, as a student, a worker, or an entrepreneur. Implicit cost is cost that does not require an outlay of money.

6. Suppose the cost of labor rises by 25% and are expected to stay at that level for a long time. Show graphically how this change in the relative price of labor and capital affects the firm’s expansion path.

7. The short-run cost function of a business is given by the equation TC = 1,250 + 5q, where TC is the total cost and q is the total quantity of output. (8 pts)

a. What is its fixed cost?

b. If the business produces 200 units of goods, what would be its average variable cost?

c. What would be its marginal cost of production?

d. What would be its average fixed cost?

Answer 1

4.

Implicit opportunity cost is the opportunity cost of self owned resources. For example: An entrepreneur who is working in its organisation and also have the offer to work for some other organisation for the salary of $10000. Here the implicit opportunity cost of working in its own organisation is $10000. Entrepreneur does not require to pay this amount to himself but in economics it is considered as the implicit opportunity cost and important for calculating economic profit.