Nazarea, Q2 SQ-4 (Costs)

What is the primary distinction between implicit and explicit costs?

• Implicit costs only occur in nonprofit organizations.

• Explicit costs are subjective, while implicit costs are objective.

• Implicit costs are recorded in accounting books, while explicit costs are not.

• Explicit costs involve direct monetary transactions, while implicit costs represent opportunity costs.

Economic and accounting profits are derived by subtracting explicit and implicit costs from the total revenue.

• True

• False

It is possible for an accountant to say that a firm is making profit while an economist

reports that the firm is making losses.

• True

• False

Which of the following is an example of an example of explicit cost for the firm?

• Wages paid to employees.

• Depreciation of machinery.

• The time spent by an owner managing their business.

• Opportunity cost of using a building owned by the business.

If a business’s total revenue is P200,000, its explicit costs are P120,000, and its implicit costs are P50,000, what is the economic profit? (Answer in whole numbers; exclude Peso signs, commas, and decimal points)

Donald is deciding whether to start a printing services business. He owns equipment he could rent out for P80,000 per year but plans to use it himself. Additionally, he would need to spend P350,000 annually on wages, supplies, and other expenses. If the business is expected to earn P570,000 in revenue, what is the implicit cost of Donald using his equipment?

• P80,000

• P140,000

• P350,000

• P430,000

Which of the following relationships is correct?

• AFC = AVC - AC

• AVC = AC + AFC

• AC = AFC + AVC

• MC = AVC + AFC

At the point where the Marginal Cost (MC) curve intersects the Average Total Cost (AC) curve:

• AC is at its maximum.

• AC is at its minimum.

• AC and AFC are equal.

• MC is equal to AFC.

Suppose a firm experiences increasing marginal costs after producing 100 units. How does this affect the shape and behavior of the Average Variable Cost (AVC) and Average Total Cost (AC) curves beyond this point?

• Rising MC pushes both AVC and AC upward after their minimum points.

• The intersection at the minimum point occurs because MC equals the average at that point of balance.

• When MC is below AVC, AVC continues to decrease because additional units are cheaper than the average variable cost so far.

• None of the choices is correct.

The __________ always decreases as output increases because fixed costs are spread over a larger number of units.

• AC

• AVC

• AFC

• TC