Question

Use your time wisely, and good luck 1. Term Explanations: (4 points each, 20 points total) (1) Implicit costs (2) Diminishing marginal product (3) Variable costs (4) Price discrimination (5) Marginal cost 2. Calculation and analysis (25point each*2-50point): company (1) We have the cost information of ABC Measures of Cost for ABC Inc. Widget Factory Variable Total Fixed Quantity of Widgets Costs Costs Costs $10 $ 1 1 $13 $ 3 2 S 6 $16 3 $10

Answer 1

Answer 1. Term explanations

1.Implicit cost=

Implicit cost is the cost which already occurred but not shown as separate cost. It represents as opportunity cost when it occurs without spending money. This cost is also called as implied cost. Implicit cost is exact opposite of explicit cost.

For example:

When employee want to go for travel in vacation, so he will spend money on that. That spending will be consider as a explicit cost. In other way, he can use that time to earning. That cost of not earning while traveling is called implicit cost.

2.Diminishing marginal product

The law of diminishing marginal product says that by increasing one production variable while keeping everything else the same will initially increase overall production but will generates low returns the more that variable is increased.

That variable can be employee.

Example :

If there are 1 employee in company, and he is producing 10 units. If we get 2nd employee production of that both employee will be 18. It means second employee will generate 8 more marginal product. We can see that one can produce 10 units but if we introduce new employee then he only produce 8 units. This rules is called diminishing marginal product. Becouse with increasing employee overall production will be increase but marginal product wil decrease by 2 units.

3.Variable cost.

There are two types of cost

1. Variable cost

2.fixed cost

Variable cost is cost which changes with the changes of production units. Variable cost is sum of marginal cost.

Example:

Material cost

Units of electricity.

4.Price discrimination.

Price discrimination is a process of charging different prices of the same product to the different buyer, in order to maximises the profits and revenue.

Mostly, monopolist does that.

Example

Airline and travel cost.

5. marginal cost

Marginal cost is occurs when one extra unit is produced. In other words, marginal cost is the changes in the total cost aries when the one the quantity produced is increased by one unit.

Marginal cost can be find by dividing change in total cost by change in total production.