Study Guide : Practice Problem #1 Explicit Costs $150,000 raw materials $20,000 (10% interest paid on $200,000 loan) = $170,000 Do NOT include: $400,000 invested (broken into …. $200,000 from savings – sunk cost $200,000 borrowed – paid back over several years Implicit Costs $20,000 (earn 10% on 200,000 savings) $70,000 (earn at boat factory)

Total Revenue $250,000 Explicit Costs - $170,000 Implicit Costs - $90,000 ____________________________________ = - $10,000

Self Test (part 1) Multiple Choice #3,4 Explicit costs $20,000 raw materials $5,000 interest paid on loan Implicit costs $5,000 could have loaned out $40,000 competing firm Ignore: $100,000 invested, $50,000 savings, $50,000 borrowed

Total Revenue$100,000 Explicit Costs $25,000 Implicit Costs $45,000 ___________________________________ = $30,000

Q WidgetsFCVCTCMC 0$10--$ $10 $1FC+VC = $11 2$10$3$13 3$10$6$16 4$10 FC+VC=$20 5$10TC-FC = $15$25 6$10$21FC+VC= $31Change TC / Change Q = $6 Self Test Part 2: # 16-19

Self Test Part 2 #20-22 WorkersQ per weekMPLCost FactoryCost WorkerTC #20: Q with 2 workers=630 ; MPL of 3 rd worker=150 means Q with 3 = 780 #21: FC = 150 ; VC = 4 workers x $275 weekly wage = 1100 ; = TC = 1250 #22: Does not box any chocolate- still have fixed costs of 150

Ch 13 Practice #5 Explicit $900 (3% interest paid on $30,000 loan) $25,000 ingredients = $25,900 Implicit $40,000 forgone salary $600 (3% on $20,000 savings) =$40,600

Economic TR$60,000 Explicit $25,900 Implicit$40,600 TC $ 66,500 = - $6,500 Accounting TR$60,000 Explicit $25,900 = $34,100 Ignore: $20,000 savings and $30,000 loan