Question

QUESTION FOUR

4.1 Complete Table 4.1 given below showing quantity, fixed cost, variable cost, total cost and marginal cost.

Quantity	Fixed Cost (R)	Variable Cost (R)	Total Cost (R)	Marginal Cost (R)
0	25	0	(a)
				(d)
2	(b)	18	(c)
				(g)
4	(e)	31	(f)
				(j)
6	(h)	(41)	(i)

2. 4.2 Using examples distinguish between fixed costs and variable costs.

3. 4.3 Differentiate between marginal cost and marginal revenue.

4. 4.4 Compare and contrast accounting and economic profits.

Answer 1

4.1 Using the information provided in the table to complete the table:

Quantity	Fixed Cost	Variable Cost	Total Cost	Marginal Cost
0	25	0	25	-
2	25	18	43	18
4	25	31	55	12
6	25	41	66	11

4.2 Fixed cost is incurred even when the firm is not producing any product whereas variable cost is only incurred when the firm starts producing the product. An example of fixed cost can be the cost of electricity, or rent of the building in which production takes place. An example of variable cost is wages paid to the workers engaged in production of the product.

4.3 Marginal cost is the additional cost incurred by the firm by producing one additional unit of a commodity. Marginal revenue is the additional revenue earned by sale of one additional unit of the commodity.

4.4 Accounting profit, however, is the difference between the total monetary revenue and total explicit cost which includes various costs like wages, rent, cost of inventory, raw materials, sales cost, etc. Economic profit, on the other hand, subtracts the explicit and implicit costs from the total monetary revenue. Implicit costs include opportunity cost, cost of self employed resources, etc.