Microeconomics and Macroeconomics docx.

Running head: MICROECONOMICS AND MACROENONOMICS
Microeconomics and Macroeconomics
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MICROECONOMICS AND MACROENONOMICS1
Table of Contents
Answer 1..........................................................................................................................................2
Answer 3..........................................................................................................................................3
Answer 4..........................................................................................................................................4
Answer 5..........................................................................................................................................4
Answer 7..........................................................................................................................................5
Reference.........................................................................................................................................7

MICROECONOMICS AND MACROENONOMICS2
Answer 1
(a) Explicit cost is any cost accrued by a firm to run its business successfully. It is the direct cost
a firm need to as employee wages, cost of raw material and rental payments. Alternatively,
implicit cost is the cost where no monetary transaction takes place. A firm accrues the
opportunity cost when it sacrifices one venture over another (Dottori et al., 2016). This
opportunity cost is called the implicit cost. For example, if a firm has factors using which it can
either produce rice or wheat. However, if it chooses to produce wheat sacrificing rice the return it
could have earned by producing rice is the implicit cost of the firm when it produces wheat.
(b) The profit which is given by the difference between firm’s total revenue generated by sales of
entire output and cost accrued due to use of all inputs and opportunity cost is called economic
profit. For example, if a company with total revenue of $100, explicit cost of $30 and implicit
cost of $20 operates in an industry then economic profit of the company is given as
Economic Profit=Total Revenue−Explict Cost −Implicit cost
¿ , Economic Profit=Total Revenue−Explict Cost −Implicit cost
¿ , Economic Profit=100−30−20
¿ , Economic Profit=$ 50
A profit of a firm which is given by the difference between the total revenue earned by
the firm by sales of all goods produced and the cost accrued by it to use inputs is called financial
(accounting profit). For example, if a firm earns total revenue of $200 by selling mobile phones
and the direct or input cost of the firm is $120 then accounting profit of the firm is given by
Accountong Profit=Total Revenue−Explict Cost