Question

In: Economics

Share an example of any business you're familiar of. Your business could be producing any kinds...

Share an example of any business you're familiar of. Your business could be producing any kinds of good or service. For your business 1st explain the good or service produced, & then give an specific example of:

- Explicit fixed cost

- Explicit variable cost

- Implicit fixed cost

- Implicit variable cost

Solutions

Expert Solution

So let's say in my business, we are manufacturing electric bulbs.

And also the premises that we are using to manufacture bulbs is rented i,e I have to pay the rent for the same.

Example of:

1. Explicit Fixed Cost: The example of explicit fixed cost can be the rent which I will pay for using the premises to manufacture bulbs. So in this case, when I am paying the rent to someone else outside the business, it's explicit cost and also if I am having zero production or no output is produced, then also I have to pay the rent for the premises. So in this way it's fixed cost also.

2. Explicit Variable Cost: The example of explicit variable cost can be the electricity bill which I am supposed to pay. In this example, since the electricity bill amount is directly proportional to the electricity which the business is using for manufacturing purpose. So there can be fluctuation in the bill amount and hence it is variable cost. Also, obviously I will pay the electricity bill amount to the someone else utside the business. So it's also an explicit cost.

3. Implicit fixed Cost: The example of implicit fixed cost can be the depreciation on fixed assets like machinery in the business. Since I am using machines for manufacturing bulbs, so obviously the value of these machines will depreciate every year and there will be no year when the value will not depreciate. So it's a fixed cost and obviously since I am mentioning about depreciation, it's an implicit cost.

4. Implicit variable Cost: The example of implicit variable cost can be the cost of training the new employees. The number of employees hired can be different in different time periods. So the cost incurred on their training is also variable i,e not fixed. The more the number of employees hired, more will be the expenditure on their training. And since we are providing them training on our cost, clearly it's an implicit cost.


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