Question

1. Sydney earned an annual income of $90,000 for a local employer. She quits her job and sets up a rival company. Her annual expenses include $30,000 to rent her premises, $6,000 for the rent on equipment, and a salary of $30,000 for office help. To help finance the new business, she cashes in a bond worth $10,000 that had an annual interest payment of $500. Sydney’s implicit costs are ________.

A. $90,000  B. $90,500  C. $100,000  D. $100,500

2. As production increases, the cost of production will be impacted. Which of the following costs is not impacted?

A. Total variable cost B. Average fixed cost   C. Marginal cost D. Sunk cost

3. When a firm hires an additional worker and production level increases, this change is called marginal _________.

A. cost   B. physical product   c. No answer text provided.   D. fixed cost

4. If the marginal physical product is decreasing, then marginal cost is ______ and total physical product is ______.

A. increasing; increasing, B. increasing; decreasing C. decreasing; increasing D. decreasing; decreasing

Answer 1

Answer to the question no. 1:

Option B: $90500.

Explanation: Implicit cost is the cost that's not paid out of the business. It's an opprtunity cost of doing something. For openning her own business she left the job where she was earning $90000 and also cashes the bond which was giving her an interest of $500. So her total implcit cost is $90000+$500=$90500.

Answer to the question no. 2:

Option D: Sunk cost

Explanation: Sunk cost is the cost which can not be recovered and will nor vary with the chang ein the production. AFC, MC and TVC changes with the change the unit production. But sunk cost is the one time cost which can not be recovered.

Answer to the question no. 3:

Option B: Marginal Physical product.

Explanation: With the employement of the additional labour unit if the production increases that additional production unit is known as the marginal physical product of labour.

Answer to the question no. 4:

Option A: Increasing, Increasing.

Explanation: When the marginal physical product is increasing that means that the marginal cost is increasing because the cost of production is rising perunit of labour. Again when the marginal physical product is decreasing but remain greater than zero the total physical product will increase. But, as soon as the MPP goes below zero the TPP whill start falling.

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