An Individual is Both the Owner and the Manager of a Shop Taken on Rent. Identify Implicit Cost and Explicit Cost from this Information. Explain - Economics

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An individual is both the owner and the manager of a shop taken on rent. Identify implicit cost and explicit cost from this information. Explain

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Solution

Implicit cost is the estimated value of self-owned inputs and there is no payment involved. Hence, the value of a manager’s service in his own business is the implicit cost.

Explicit cost is the actual money expenditure on inputs and there is payment for hiring factor services. Hence, the rent paid for the shop is an explicit cost.

Therefore, the total cost of production of good includes not only the actual cost incurred in the firm, i.e. explicit cost but also implicit cost, i.e. the inputs supplied by the owners of the firm.

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2011-2012 (March) Delhi Set 1

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Output

(Units)

Average Fixed Cost

(Rs )

Marginal Cost

(Rs)

Average Variable Cost

(Rs)

Average Cost

(Rs)

1 60 20 ... ...
2 ... ... 19 ...
3 20 ... 18 ...
4 ... 18 ... ...
5 12 ... ... 31

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Output
(Units)
Total Revenue
(Rs )
Total Cost
(Rs )
1 10 8
2 18 15
3 24 21
4 28 25
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Complete the following table:

Output
(Units)
Average Fixed Cost
(Rs )
Marginal Cost
(Rs )
Average Variable Cost
(Rs )
Average Cost
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0 30      
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2 78 ... ... ...
3 ... 23 ... 10
4 ... ... 23 ...
5 150 ... ... 6

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Output
(Units)
Total Revenue
(Rs )
Total Cost
(Rs )
1 16 14
2 30 27
3 42 39
4 52 49
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Complete the following table:

Output
(units)
Average
Fixed Cost
(Rs)
Average
Variable
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Marginal
Cost (Rs)
Total Cost
(Rs)
1 120 40 ... ...
2 60 56 ... 232
3 ... 54 ... ...
4 30 ... 54 ...
5 ... ... ... ...

Distinguish between fixed and variable costs. Give one example of each.


What is meant by cost in economics?


Briefly explain the concept of the cost function.


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