Question

It's time again to explore this week's session with your colleagues! Select a relevant microeconomics industry of your choice in the region in which you reside. Differentiate between the firm's implicit and explicit cost and discuss the firm’s variable and fixed costs. For your chosen industry please express whether your firm is economically viable or not. Is your firm profitable? Do they have an optimistic or uncertain outlook for the near future?

Locate a recent article or event (published within the last year) that highlights your relevant microeconomics topic. Use the Hunt Library, newspapers, new stations, or other credible sources to discuss how your topic aligns with microeconomics. Include the following in your discussion:

1) State the article or event you selected.

2) Identify the microeconomic concept(s).

3) Describe your findings.

4) Analyze the relevance to real-life applications.

Summarize your findings using at least 250 words and provide a minimum of one reference.

Answer 1

Solution:

Question 1:

(a) There is an industry which makes ceramic utensils known as "Laopala". The Laopala firm's costs are:

• Implicit cost = Land on which the firm is set up. Implicit cost is the estimated value of inputs owned by the firm and used by it in its own production.
• Explicit cost = cost of raw materials + wages of labour + other variable costs. Explicit cost is the expense incurred by the firm to the owner of factor services in purchasing and hiring the factors of production used in the production of a commodity.
• Variable cost is the cost incurred by a firm on the use of the variable factors. This includes costs of raw materials, wages paid to temporary workers or labours, cost of fuel and power used in production., transportation expenses, etc.
• Fixed cost is the cost incurred by the firm on the use of fixed factors. This includes capital invested, rent, insurance, property tax, salaries to permanent employees, etc.

(b) Yes, the firm is economically viable, as the raw materials are easily available, climate is moderate and its products are in great demand.

(c) Yes, the firm is profitable as its products are in great demand.

(d) The firm has an optimistic outlook in the near future, as it export it's products to Dubai, Italy, etc.