Exercise I: Explicit and implicit costs

Determine and explain whether each of the following is an explicit or implicit cost: Remember to explain in one or two sentences the reason for your answer.

a. The wage income that an owner could earn if he did not work for himself. b. The payment of rent for a warehouse that is rented by the company. c. The possible rent received for 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

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

Note: To receive the full score, you must present the procedure of your calculations to obtain the final result; results without procedure will not be acceptable.

a. A company with total revenues of $130 million, explicit costs of $80 million, and implicit costs of $20 million b. A company with total revenues 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 business with total revenue of $350,000, explicit costs of $395,000, and implicit costs of $40,000