1. Which of the following constitutes an implicit cost to the Johnston Manufacturing Company? a. Payments of wages to its office workers. b. Rent paid for the use of equipment owned by the Schultz Machinery Company. c. Use of savings to pay operating expenses instead of generating interest income. d. Economic profits resulting from current production. 2. Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100
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1. EXERCISES – LECTURE 2 1. QUESTION: Find point price elasticity, point income elasticity and point cross-price elasticity at P=10, Y=20, and Ps=9, if the demand function were estimated to be: Qd = 90 – 8.P + 2.Y + 2.Ps Is the demand for this product elastic or inelastic? Is it a luxury or a necessity? Does this product have a close substitute or complement? Find the point elasticity of demand. 2. ANSWER: | | |
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TRANSPORT ECONOMICS – Costs and Revenues In economics it is important to understand the costs and revenues of firms. This will give an important insight into the behaviour of firms. Basic / traditional economic considers that the sole purpose of firms is to maximise profits. This goal then leads firms to minimise costs and maximise profits. Transport firms are no different. In the UK we have many types of firms * Rail * Network Rail is responsible for rail infrastructure
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value method. The NRV method allocates joint costs on the basis of the final sales value less separable costs. Plus the final sales value is simply the price tag. That price tag is paid by the customer. That price is paid after all production costs, whether they are joint costs or separable costs incurred after splitoff. The NRV method also does a good job of matching the benefit received (final sales value) with the costs incurred (separable costs). The calculation happens at the end
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Assume that the cost data in the top table of the next column are for purely competitive producer: Total Product Average fixed Cost Average Variable Cost Average Total Cost Marginal Cost 0 1 $60.00 $45.00 $105.00 $45 2 $30.00 $42.50 $72.50 $40 3 $20.00 $40.00 $60.00 $35 4 $15.00 $37.50 $52.50 $30 5 $12.00 $37.00 $49.00 $35 6 $10.00 $37.50 $47.50 $40 7 $8.57 $38.57 $47.14 $45 8 $7.50 $40.63 $48.13 $55 9 $6.67 $43.33
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demand for business travel. 6. Cash expenditures a firm makes to pay for resources are called ( ) a. implicit costs. b. explicit costs. c. normal profit. d. opportunity costs. 7. Economic profits are equal to ( ) a. total revenues minus fixed costs. b. total revenues minus the costs of raw materials. c. total revenues minus the opportunity costs of all inputs. d. gross profit minus selling and operating expenses. 8. The main difference between the short run
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= 8 per day * Overtime work hours ≤ 40 per month Item | Cost | Materials | $12/unit | Inventory holding cost | $2/unit/month | Marginal cost of a stockout | $10/unit/month | Hiring and training costs | $3000/worker | Layoff cost | $5000/worker | Labor hours required | .25/unit | Regular time cost | $15/hour | Over time cost | $22.50/hour | Cost of subcontracting | $18/unit | Cost Table Linear Programming Decision variables : * Wt = Workforce
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required to cover the costs of inputs and all of expenses associated with it. Economic profit is a forgone profit and not and economic profit which is the biggest difference between the two types of profits. The difference between economic profit and business profit is that in economic profit, profit or loss is calculated by subtracting opportunity cost of the inputs from the revenue of sales. Business profit is the difference between the total revenue and total costs incurred to earn that
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shape would indicate; A. Increasing opportunity cost B. Decreasing opportunity cost C. Constant opportunity cost D. Absolute and Comparative Advantage E. Comparative but not absolute advantage Answer C. Constant opportunity cost James Chasey [pic] Figure 1 3. If the current price for the perfectly competitive firm represented in Figure 1 is $10.00, what would be the result of an increase in fixed cost on the firm’s profit maximizing price and quantity?
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Total Variable Fixed Marginal Output Cost Cost Cost Cost 0 50 1 60 2 75 3 100 4 150 5 225 6 400 31) Complete the following table (round each answer to the nearest whole number): Total Variable Fixed Marginal Average Avg. Var. Avg. Fixed Output Cost Cost Cost Cost Cost Cost Cost 0 30 1 35 2 60 3 110 4 200 5 320 6 600 26) A firm's total cost function is given by the equation:
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