ECON 103

What makes the next unit cost more?

Name: Business Tutor
Address: Burnaby, BC, CA
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Follow production costs from the owner's alternatives to marginal cost, average cost and efficient scale. Learn with movable curves, then solve 10 questions with worked answers.

Costs, profit and output · Step 1 of 12

Costs include money paid and alternatives given up

All opportunity costs for the period

Costs: total $1,600

Explicit: $1,100Implicit: $500

Selected cost	Amount	Type
Paid rent	$200	Explicit

Costs, profit and output · Step 1 of 12

Costs include money paid and alternatives given up

Willowglade Workshop is invented, and every amount in this lesson is made up. For one operating period it pays rent of $200, materials of $300 and hired workers $600: explicit costs require a money payment. The owner also gives up an alternative wage and $300 of interest on invested money: these implicit costs require no payment.

Try it: Choose a cost, then change the owner’s alternative wage.

Cost to classify

Owner’s forgone wage ($ per period)$200

Explicit cost

$1,100

Implicit cost

$500

Cost type

Explicit

Explicit costs = (200 + 300 + 600) = $1,100.

Implicit costs = (200 + 300) = $500.

All costs = (1,100 + 500) = $1,600.

Check yourself

The owner uses savings that could have earned interest. The interest given up is…

Question 1 of 10Core

Two ways to measure profit

For one invented operating period, Willowglade Workshop earns revenue of $1,800, pays explicit costs of $1,100, and gives up implicit costs of $500 through the owner’s alternative wage and interest combined. Find all opportunity costs, accounting profit and economic profit. Calculate accounting profit minus economic profit, then say whether revenue covers all opportunity costs.

Given

Total revenue$1,800

Explicit costs$1,100

Implicit costs$500

Solution

The same revenue, two cost definitions

Item	Amount
Revenue	$1,800
All costs	?
Accounting profit	?
Economic profit	?
Difference	?

Explicit: cash paymentsImplicit: best alternatives given up

Read the question and the givens first. Try the first part yourself, then press Start solving and open the working to check.

All costs

Acct profit

Econ profit

Gap; outcome

Exam coming up and the cost curves still look like spaghetti?

Bring your problem sets. We work through them together until every type feels routine.

Book a session Next toolNext: Competitive firms: price takers and profit

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What makes the next unit cost more?

Costs include money paid and alternatives given up

Costs include money paid and alternatives given up

Two ways to measure profit

Exam coming up and the cost curves still look like spaghetti?

Questions, answered.

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