Question

1. Explain how marginal costs, direct costs and opportunity costs are different. Use an example from your personal life to illustrate each concept.
2. Do you agree with Robert Moses’ ideas of wiping out cities that are an "impediment to new growth"? (see Scarcity and Eminent Domain) Why or why not?
3. Using Table 1, create one graph that illustrates all three lawnmowers’ Marginal Costs (Beth, Jim and Susan).
4. Using Table 1, for each mower, identify if the Marginal Cost and Total Cost is increasing, constant, or decreasing.

Table 1

Susan's Quantity Beth's marginal Jim's marginal Susan's margina of lawnstotal cost of toa Cost of total cost of mowed Jim's Beth's lawns ostmowed mowed SO S20 S10 10 15 20 10 10 10 45 30 17 10 20 30 82

Answer 1

Answer to the first question have been provided below :

1) Marginal cost : Marginal cost refers to the cost of producing an extra unit . Suppose I can produce total of 4 units of ice cream which takes 100 dollars to produce . Now I want to produce 5 units of ice cream . After 5 units I find that total cost of production is 120 dollars . So the marginal cost of producing the 5th unit is 120 - 100 = 20 dollars . Hence 20 dollars is the marginal cost or the cost of producing an extra unit .

Direct cost : Actual direct cost is also known as accounting cost or the monetary outlay for producing a certain good . Accounting cost includes the fixed and variable costs of production . Let us take the same example of making ice creams . I have bought a machine at first which is my fixed cost . Then every day I buy fresh milk and cream to make the product . These are my variable costs . So all these costs that are added in my accounts come under direct cost .

Opportunity cost : It refers to the next best alternative that is forgone . Suppose I had invested 500 dollars to set up my ice cream factory . Now after setting up the factory that money cannot be used to set up a soft drinks factory . That money could have been used in various other areas . So these forgone opportunities are called the opportunity cost of producing ice cream . Such costs are included under economic costs and not under accounting costs .