Economic Characteristics of Costs
The following terms are used to describe various economic characteristics of costs.
a. Opportunity cost
b. Out-of-pocket cost
c. Sunk cost
d. Differential cost
e. Marginal cost
f. Average cost
Required: Choose one of the terms listed above to characterize each of the amounts described below.
1. The cost of feeding 500 children in a public school cafeteria is $800 per day, or $1.60 per child per day. What economic term describes this $1.60 cost? ,
2. The cost of including one extra child in a day-care center.
3. The cost of merchandise inventory purchased two years ago, which is now obsolete.
4. The management of a high-rise office building uses 2.500 square feet of space in the building for its own management functions. This space could be rented for $250,000. What economic term describes this $250,000 in lost rental revenue?
5. The cost of building an automated assembly line in a factory is $800,000. The cost of building a manually operated assembly line is $375,000. What economic term is used to describe the difference between these two amounts?
6. Referring to the preceding question, what economic term is used to describe the $800,000 cost of building the automated assembly line?
7. The cost incurred by a mass customizer such as Dell Computer to produce one more unit in its most popular line of laptop computers.
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