Microeconomics Theory 2022

Running head: MICROECONOMICS
Microeconomics
Name of the Student
Name of the University
Student ID

MICROECONOMICS1
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................2
Answer 3..........................................................................................................................................3
Answer 4..........................................................................................................................................3
Answer 5..........................................................................................................................................4
Answer 6..........................................................................................................................................4
Answer 7..........................................................................................................................................5
Reference.........................................................................................................................................6

MICROECONOMICS2
Answer 1
(a) It is important to distinguish between explicit and implicit costs because both gives different
notions and helps to make decision about a venture or business differently (Gould and Blair
2020). Explicit cost is the direct cost of running a business such as wages and raw material cost
and thus it helps in business operation decision. Alternatively, implicit cost is the opportunity
cost of the business such a not using an advanced technology and not producing another product.
(b) Nike spent 1 billion on advertising expenditure- Explicit
Jims Transport spent 5000 of fuel - Explicit
BHP paid interest on company issued bonds - Implicit
Rio Tinto spent 200 million on executive salaries – Explicit
Except interest payment, all are explicit. Interest payment is the cost that BHP is paying for using
funds that it borrowed from market. On the other hand, all other are direct payment under
business operation.
Answer 2
(a) MPL =5=, MC=3. Therefore MPL> MC thus with every unit employment of marginal returns
increases and thus firm makes more product by accruing lower cost. That is average total cost is
decreasing. However, if MPL becomes 2 and MC increases to 4, marginal return will be lower
increase in cost. That is fall in MPL causes marginal returns to fall and marginal cost to rise.