Final answer:
The transaction costs for Vicky and Dmitri's bathroom installation are $155, encompassing the advertising and legal fees. Economics emphasizes the role of these costs in market efficiency and business decisions. Transaction costs also include variable and fixed expenses when determining true investment costs and profitability, as seen in provided real estate and service business examples.
Step-by-step explanation:
The transaction costs associated with the exchange between Vicky and Dmitri are the total expenses incurred that are not part of the actual product or service being traded, that is, the cost of installing the new bathroom itself. These costs include the ad posted by Dmitri and the legal fee paid by Vicky for the contract. Dmitri's ad cost is $60, and the legal fees cost Vicky $95, so the total transaction costs are $155.
Transaction costs are important in economics as they affect the efficiency of market operations and can influence decisions on whether or not to engage in a particular economic activity. They are a critical component when considering implicit costs and profitability in scenarios like the decision Eryn faces about starting a legal practice, as well as determining the true cost and potential profit when engaging in real estate transactions, as seen in the examples of Freda and Ben's house purchases.
When looking at Aaron's Word Processing Service, the total cost equation is an example of how businesses must account for both variable and fixed costs when setting prices. The equation for the total cost (TC) in terms of the number of hours (h) required to complete the job is TC = $32 × h + $31.50, where $32 is the rate per hour and $31.50 is the one-time charge.
In considering the purchase of a property, as in the Rouen example, transaction costs such as repair expenses and potential legal fees must be considered in addition to the purchase price to determine the true cost of the investment and its potential value as a bargain.