Topic 8 – Production Assignment 1
1. Which of the following is an implicit cost of owning and operating a farm?
The money a farmer could earn by working for someone else
2. Barney decides to quit his job as a corporate accountant, which pays $10,000 a month,
and goes into business for himself as a certified public accountant.
He runs his business from his converted garage apartment, which he could rent out for
$300 a month if he wasn’t using it as a home office. He must purchase office supplies
worth $75 a month, and his monthly electricity bill has increased by $50 now that he is
working out of his home office.
After six months of working from home, Barney has earned an average of $12,000 per
month.
Instructions: Enter your answers as a whole number.
a. What are Barney’s monthly explicit costs?
125
b. What are Barney’s monthly implicit costs?
10,300
c. What are Barney’s monthly economic costs?
10,425
Explanation
a. Office supplies ($75) and electricity ($50) are considered explicit costs because they
involve a payment. Therefore, explicit costs are $125 ($75 + $50).
b. In addition, there are implicit costs. Barney works out of his garage apartment and cannot
rent his apartment. He also does not have the time to work at his regular job. Therefore,
he forgoes rent ($300) and income ($10,000). These are implicit costs because they do
not involve a payment now or in the future ($300 + $10,000).
c. Economic costs consider both implicit and explicit costs ($10,300 + $125). Therefore,
monthly economic costs are $10,425.
, Topic 8 – Production Assignment 2
3. Barney decides to quit his job as a corporate accountant, which pays $10,000 a month,
and goes into business for himself as a certified public accountant.
He runs his business from his converted garage apartment, which he could rent out for
$300 a month if he wasn’t using it as a home office. He must purchase office supplies
worth $75 a month, and his monthly electricity bill has increased by $50 now that he is
working out of his home office.
After six months of working from home, Barney has earned an average of $12,000 per
month.
Instructions: Enter your answers as a whole number.
a. What are Barney’s average monthly accounting profits?
$ 11,875
b. What are Barney’s average monthly economic profits?
$ 1,575
Explanation
a. Office supplies ($75) and electricity ($50) are considered explicit costs because they
involve a payment. Therefore, explicit costs are $125 ($75 + $50). Accounting profit is
the difference between revenue ($12,000) and explicit costs ($125).
b. In addition, there are implicit costs. Barney works out of his garage apartment and cannot
rent his garage apartment. He also does not have the time to work at his regular job.
Therefore, he forgoes rent ($300) and income ($10,000). These are implicit costs because
they do not involve a payment now or in the future ($300 + $10,000). Economic profit is
the difference between revenue ($12,000) and economic cost, which is the sum of explicit
and implicit costs ($10,425). Therefore, economic profit is $1,575 ($12,000 – $10,425).
1. Which of the following is an implicit cost of owning and operating a farm?
The money a farmer could earn by working for someone else
2. Barney decides to quit his job as a corporate accountant, which pays $10,000 a month,
and goes into business for himself as a certified public accountant.
He runs his business from his converted garage apartment, which he could rent out for
$300 a month if he wasn’t using it as a home office. He must purchase office supplies
worth $75 a month, and his monthly electricity bill has increased by $50 now that he is
working out of his home office.
After six months of working from home, Barney has earned an average of $12,000 per
month.
Instructions: Enter your answers as a whole number.
a. What are Barney’s monthly explicit costs?
125
b. What are Barney’s monthly implicit costs?
10,300
c. What are Barney’s monthly economic costs?
10,425
Explanation
a. Office supplies ($75) and electricity ($50) are considered explicit costs because they
involve a payment. Therefore, explicit costs are $125 ($75 + $50).
b. In addition, there are implicit costs. Barney works out of his garage apartment and cannot
rent his apartment. He also does not have the time to work at his regular job. Therefore,
he forgoes rent ($300) and income ($10,000). These are implicit costs because they do
not involve a payment now or in the future ($300 + $10,000).
c. Economic costs consider both implicit and explicit costs ($10,300 + $125). Therefore,
monthly economic costs are $10,425.
, Topic 8 – Production Assignment 2
3. Barney decides to quit his job as a corporate accountant, which pays $10,000 a month,
and goes into business for himself as a certified public accountant.
He runs his business from his converted garage apartment, which he could rent out for
$300 a month if he wasn’t using it as a home office. He must purchase office supplies
worth $75 a month, and his monthly electricity bill has increased by $50 now that he is
working out of his home office.
After six months of working from home, Barney has earned an average of $12,000 per
month.
Instructions: Enter your answers as a whole number.
a. What are Barney’s average monthly accounting profits?
$ 11,875
b. What are Barney’s average monthly economic profits?
$ 1,575
Explanation
a. Office supplies ($75) and electricity ($50) are considered explicit costs because they
involve a payment. Therefore, explicit costs are $125 ($75 + $50). Accounting profit is
the difference between revenue ($12,000) and explicit costs ($125).
b. In addition, there are implicit costs. Barney works out of his garage apartment and cannot
rent his garage apartment. He also does not have the time to work at his regular job.
Therefore, he forgoes rent ($300) and income ($10,000). These are implicit costs because
they do not involve a payment now or in the future ($300 + $10,000). Economic profit is
the difference between revenue ($12,000) and economic cost, which is the sum of explicit
and implicit costs ($10,425). Therefore, economic profit is $1,575 ($12,000 – $10,425).
