Sally quit her job as an auto mechanic earning $50,000 per year to start her own

Question

Sally quit her job as an auto mechanic earning $50,000 per year to start her own business. To save money she operates her business out of a small building she owns which, until she started her own business, she had rented out for $10,000 per year. She also invested her $20,000 savings (which earned a market interest rate of 5% per year) in her business. You are given the following information about the first year of her operations. Calculate her explicit costs. Calculate her implicit costs. The table above shows the technology of production at the Matsuko's Mushroom Farm for the month of May. What is the marginal product of the 4th worker? What is the average product of labor when the farm hires 5 workers? Diminishing marginal returns sets in when the worker is hired.

Explanation / Answer

Q1

Answer:

Explicit costs are accounting costs
=Cost of Labour+Cost of Material + equipment rental
=40000+15000+5000
=60000
Implicit cost are not incurred but are opportunity costs
=Salary+Interest earning+rent earning
=50000+1000+10000
=61000

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