2012 Multiple Choice (Basic)
(PPC, Comparative Advantage, Supply & Demand)
Answer - (C) amount that must be given up,
(sacrificed, foregone, lost, given-up)
Answer - (E) increasing opportunity costs
Basic Cheat Sheet here.
Answer - (A)
Understand that a Country can have absolute advantage in production of a good and have comparative advantage in the good.
A country can have absolute advantage in both goods,
but a country can only have a comparative advantage in one good.
I guess there can also be no comparative advantage.
Comparative advantage cheat sheet here. (I'm finding this sheet isn't working for me)
Answer - (A) - 5000
Economic Profit (includes implicit costs)
Implicit costs are the costs to the firm of paying the entrepreneur to stay in this business,,, in essence,, the entrepreneur must make enough of a return on his investment to stay in this line of business.
Sally could have had a salary of $25,000 and rented her building for $10,000 - these are costs
Her accounting costs were $125,000 and the $35,000 (foregone salary and rent) = $160,000
Profit = TR - TC
Sally's total costs = 125k (explicit costs) + the 35k (implicit included) = $160,000
and Total revenues = $155,000
TR(155k) - TC(160k) - $-5000
Therefore Sally actually lost -5000 on her investment
Answer - (B)
Answer - (D)
Salary given up, foregone, lost, sacrificed = $12,000
Yearly Cost of school = $4,600
Total opportunity cost = $16,600
Answer - (A)
If nothing is sacrificed, foregone, given-up or lost then it is a free good.