Efficiency, equity and production costs

Instructions

** Exercise I: Explicit and implicit costs (20 points in total / 5 points each)

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

Remember to explain in a sentence or two the reason for your answer.

a Income from wages that a landlord could earn if he did not work for him.

b The payment of the rent of a warehouse that is rented by the company.

c The possible income 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 labor hired in the labor market.

** Exercise II: Economic efficiency: profit or loss measures (20 points in total / 5 points each)

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 submit the procedure of your calculations to obtain the final result;results without procedure will not be acceptable.

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 revenue of $ 110 million, explicit costs of $ 80 million, and implicit costs of $ 50 million

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