Efficiency, equity and production costs 5.1

Exercise I: Explicit and implicit costs

Determine and explain whether each of the following is an explicit or implicit cost:

a) The income from wages that an owner could earn if he did not work for himself.

b) Payment of rent for a warehouse that is rented by the company.

c) The possible rent received from the rental to another company of a building owned by the company that uses it as a warehouse for its own production.

d) Payments made for hired labor in the labor market.

Exercise II: Economic efficiency: measures of profit or loss

You must present the procedure of your calculations to obtain the final result.

Calculate the accounting profit or loss as well as the economic profit or loss in each of the following situations:

a) A company with total revenue of $ 130 million, explicit costs of $ 80 million, and implicit costs of $ 20 million

b) A company with total revenue of $ 145 million, explicit costs of $ 110 million, and implicit costs of $ 15 million

c) A company with total revenues of $ 110 million, explicit costs of $ 80 million, and implicit costs of $ 50 million

d) A company with total revenues of $ 350,000, explicit costs of $ 395,000, and implicit costs of $ 40,000