Question

Fill in the type of cost that best completes each sentence.

a. Profits equal total revenue minus ______________ .
b. The term __________ refers to costs that involve direct monetary payment by the firm.
c. _____________ is falling when marginal cost is below it and rising when marginal cost is above it.
d. The cost of producing an extra unit of output is the _____________ .
e. __________ is always falling as the quantity of output increases.
f. The opportunity cost of running a business that does not involve cash outflow is a(an) ____________ .

Answer 1

a. total cost

b. explicit cost

c. average variable cost

d. marginal cost

e. average fixed cost

f. implicit cost

Step-by-step explanation:

Profit is total revenue less total cost

Total revenue =price x quantity sold

for example, if total revenue is 100,000 and total cost is 50,000, profit = 100,000 - 50,000 = 50,000

Explicit cost includes the amount expended in running the business. It involves direct monetary payment by the firm. It is used in calculating accounting profit.

They include rent , salary and cost of raw materials

Implicit cost is the cost of the next best option forgone when one alternative is chosen over other alternatives. It is used in calculating economic profit.

For example, if an entrepreneur left a job where he earns 100,000 to start a business. His implicit cost is 100,000.

Marginal cost is the additional cost generated by producing an additional unit of output.

For example, if the total cost of producing 10 units of a good is 100 and the total cost of producing 12 units is 120. Marginal cost

(120 - 100) / (12 - 10) = 10

Fixed cost is cost that does not vary with output. An example of fixed cost is rent

Average fixed cost = fixed cost / quantity of output.

for example, if fixed cost is 100,

average fixed cost when output is 10 units = 100 / 10 = 10

average fixed cost when output is 20 units = 100 /20 = 5

it can be seen that the average fixed cost reduces as output increases