Exercise I: Explicit and implicit costs

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

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 the company rents.

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

d.) Payments are made by 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:

You must present the procedure of your calculations.

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.