Question

Total Total Quantity Revenue Cost 0 $0 $10 $25 $20 $50 $75 $35 $100 $50 - $25 N W $125 $70 0 0 6 7 00 $150 $175 $200 $225 $250 $95 $125 $160 $200 $250 00 10 Question 5 of 9 1 Points Click to see additional instructions At what quantity does diminishing marginal product of labor start? Question 6 of 9 1 Points Click to see additional instructions At what quantity does marginal revenue equal marginal cost?

Michael has just opened a pharmacy called Drugs-R-Us. Prior to opening his own pharmacy, Michael worked at CVS for a yearly salary of $45,000. To put a payment down on the new Drugs-R-Us building, Michael withdrew $10,000 from his savings where it earned $300 in interest a year. Drugs-R-Us purchased $22,000 worth of inventory for the pharmacy. Michael is the only employee of Drugs-R-Us, and it pays him a yearly salary of $20,000. Which of the following are TRUE as it applies to Drugs-R-Us? [Select all that apply]

A. Drugs-R-Us' total costs are equal to $87,300.
B. Drugs-R-Us' total costs are equal to $97,300.
C. Drugs-R-Us' explicit costs are equal to $42,000.
D. Drugs-R-Us' implicit costs are equal to $25,300.

Answer 1

Answer

Marginal Revenue(MR) = Change in total revenue / Change in an extra unit of output

Marginal Cost = Change in total cost / Change in an extra unit of output

In the following table, we have shown the marginal revenue and marginal cost for each additional quantity of output.

Quantity	Total Revenue	Total Cost	Marginal Revenue	Marginal Cost
0	$0	$10	-	-
			$25	$10
1	$25	$20
			$25	$5
2	$50	$25
			$25	$10
3	$75	$35
			$25	$15
4	$100	$50
			$25	$20
5	$125	$70
			$25	$25
6	$150	$95
			$25	$30
7	$175	$125
			$25	$35
8	$200	$160
			$25	$40
9	$225	$200
			$25	$50
10	$250	$250

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Question 5 of 9: At what quantity does diminishing marginal product of labor starts?

Answer: 3 units

The level of output that shows the diminishing marginal product starts, it is that level of output from which the marginal cost starts to rise.

From the above table, we see that when the quantity of output increases from 2 units to 3 units, the marginal cost increases fro $5 to $10. Thus, from 3 units of production, the marginal cost starts to rise. So we can conclude that, the diminishing marginal products starts when quantity of output is 3 units.

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Question 6 of 9: At what quantity does marginal revenue equal marginal cost?

Answer: 6 units

From the above table, we see that when the quantity of output is 6 units, both the marginal revenue and the marginal cost is $25. Hence, the marginal revenue equals the marginal cost when quantity of output is 6 units.

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Answer: D.Drugs-R-Us' implicit costs are equal to $25,300.

Prior to opening his own pharmacy, Michael worked at CVS for a yearly salary of $45,000. When Michael opened his own pharmacy,for  new Drugs-R-Us building cost he withdrew $10,000 from his savings where he earned $300 in interest a year. Michael also purchased $22,000 worth of inventory for the pharmacy.  Michael is the only employee of Drugs-R-Us, and where he gets yearly salary of $20,000.

When Michael starts his own pharmacy business, he sacrifices his previous yearly salary of $45,000 plus $300 interest income.

The total income Michael sacrifices = $45,000 + 4300 = $45,300

Now, Michael is the only employee of his pharmacy where he earns yearly salary of $20,000

Thus the yearly income Michael sacrifices or gives up = $45,300 - $20,000 = $25,300

So, $25,300 is the implicit cost for opening Drugs-R-Us.

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Let us see Drugs-R-Us' explicit and total costs.

Michael's total cost for opening his pharmacy = Explicit cost + Implicit cost

Explicit cost is the direct cost. Here Michael's explicit cost for opening his pharmacy is $10,000 for building cost plus $22,000  inventory cost.

$\therefore$ Drugs-R-Us' explicit costs = $10,000 + $22,000 = $32,000

So, Michael's total cost for opening his pharmacy = $32,000 + $25,300 = 57,300

$\therefore$  Drugs-R-Us' total costs are equal to $57,300.

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So, from the given options, we conclude only option 'D' is correct , i.e., 'Drugs-R-Us' implicit costs are equal to $25,300'.

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