1) Total Revenue | $120,000 | | Salary Forgone | $50,000 | | Employee’s wages | 40,000 | | Loss on Rent | $10,000 | per year | Material Cost | 15,000 | | Lost return on savings (5%) | $ 1,000 | per year | Rental of Equipment | 5,000 | | Savings invested in business | $20,000 | | a) | | | | | | | Economic Costs | $121,000 | | | | | Accounting Costs | 60,000 | | | | | b) | | | | | | | Accounting Profit | $60,000 | | | | | C) | | | | | | | Economic Profit | ($1,000) | | | | | d) | | | | | | | No, because she is forgoing the rent income she would have been earning before she started her own business | |
2)
| Fixed Cost | Marginal Cost | Variable Costs | | | Small Plant | $10,000 | $2.00 | $12,000 | | | | Medium Plant | $15,000 | $1.40 | $12,600 | | | | Large Plant | $25,000 | $0.50 | $9,000 | | | | a) | | | | | | | Average Cost of Production | | | | Clock Radios | 6000 | 9000 | 18000 | | | | Small Plant | $3.67 | $3.11 | $2.56 | | | | Medium Plant | $3.90 | $3.07 | $2.23 | | | | Large Plant | $4.67 | $3.28 | $1.89 | | | | b) | | | | | | | 6000 Units - Small Plant | | | | | | | 9000 Units - Medium Plant | | | | | | | 18000 Unit - Large Plant | | | | | | | c) | | | | | | | In the short run the average total cost of producing 18000 units at $2.23 a unit in a medium plant is $40,140. | | d) | | | | | | | In the long run the average cost of producing 18000 decreases from $2.23 in a medium plant to $1.89 in a large plant. So, the average total cost will decrease from $41,140 to $34,020, a difference of $7,120. | | |

3) Quantity (cases) | Variable Cost ($) | Total Cost ($) | Marginal Cost ($) | Average Variable Cost ($) | Average Total Cost ($) |