Question

You own for a firm that sells stemless wineglasses. Last year, you sold glasses for $32 per pair. Over the year, you sold an average of 2500 pairs per month. You hired a business consultant who recommended that you raise the price to $36 per pair. When you did this, your sales fell to an average of 2100 pairs per month. Using this information and assuming that your firm faces a linear demand curve, estimate your firm’s demand curve. Continuing from the previous problem. You pays $4,000 per month to rent your factory and the equipment that you need to make the glasses. You manage the factory and currently do not pay yourself a salary so that you can reinvest your profits in the firm. Before you started the firm, you worked as an accountant for a large consulting firm and earned $4,000 per month. The glass and other materials you use for a pair of glasses costs about $9 per pair of stemless glasses. Your labor costs for your hourly workers who make the glasses are $2 per pair of glasses. Continuing from the previous problem. You pays $4,000 per month to rent your factory and the equipment that you need to make the glasses. You manage the factory and currently do not pay yourself a salary so that you can reinvest your profits in the firm. Before you started the firm, you worked as an accountant for a large consulting firm and earned $4,000 per month. The glass and other materials you use for a pair of glasses costs about $9 per pair of stemless glasses. Your labor costs for your hourly workers who make the glasses are $2 per pair of glasses.

1. What are your firm’s fixed costs?

Fixed cost= rent and equipment $4000

2. What are your firm’s variable costs?

3. Of these costs, which costs are explicit costs?

4. And which costs are implicit costs?

5. What is your ECONOMIC total cost function (monthy)?

Answer 1

A. Firm's fixed costs do not vary with the change in output.

Firm's fixed cost = Rent and equipment = $4000

B. Firm's Variable cost varies with the change in output.

Firm's variable cost = Glass and other materials + Labor Costs = $9 + $2 per pair = $11 per pair

C. Explicit costs take the direct payment made into account.

Explicit cost = Rent and equipment + Glass and other materials + Labor costs = $4000 + $11 + = $4011

D. Implicit costs are those cost which do not consider the direct payment made.

Implicit Costs = Salary might be earned by the owner working as an accountant.

Implicit Cost = $4000 per month

E. Economic Total Cost = Explicit Cost + Implicit Cost

= $4011 + $4000

= $8011