Alice Chan turned her hobby into her career. She resigned from her job as an accounts assistant to become a full-time piano teacher. She was paid $2200 a month previously when she worked as an accounts assistant in a departmental store. She took out her $35,000 savings from the bank to buy a piano for teaching purpose. The bank was paying 1% annual interest rate for savings account. She rented a place at $2000 a month to be used as a music studio to conduct piano lessons. The estimated monthly utilities bill was $800. She was very much sought-after as a piano teacher. At the end of her first year of teaching piano, Alice managed to earn a total revenue of $70,000.

State whether Alice has made an economic loss after one year of teaching? Show your workings clearly by detailing all her explicit and implicit costs.

3.The following are some costs incurred by a shoe manufacturer. Decide whether each is a fixed cost or a variable cost:

(a)the cost of leather;

(b)wear and tear on machinery;

(c)electricity for running the machines;

(d)basic minimum wages agreed with the union;

(e)overtime pay;

(f)rental paid for the use offactory space on contractual terms;

(g)purchase costs of machinery.

4.If the firm experiences an increase in fixed costs, state the effect on :

(i)Average Variable Costs

(ii)Marginal Costs-