Answer:
A. $0.08
B. $0.10
C. $0.18
D. $126
E. $96
Explanation:
Given that,
Her costs per glass are as follows:
$0.01 for water,
$0.02 for sugar,
$0.03 for lemons,
$0.02 for cups, and
$0.10 for the opportunity cost of her labor.
Number of glasses sells = 300
selling price of each glass = $0.50
A. Explicit costs refers to the cost that are incurred during the production of a good and can be directly measured. Here, the explicit costs are the cost of inputs.
Therefore, the explicit costs per glass is as follows:
= Water + Sugar + Lemons + Cups
= $0.01 + $0.02 + $0.03 + $0.02
= $0.08
B. Implicit costs refers to the cost of choosing some alternative over other alternative. It is also known as the opportunity cost.
Hence, the implicit cost per glass is the opportunity cost of her labor i.e, $0.10.
C. Total economic costs per glass = Explicit cost + Implicit cost
= $0.08 + $0.10
= $0.18
D. Total accounting profits is determined by deducting the explicit costs from the total revenue.
Total accounting profits:
= Total revenue - Total Explicit costs
= (300 × $0.50) - (300 × $0.08)
= $150 - $24
= $126
E. Economic profits:
= Total revenue - Total Explicit costs - Total Implicit costs
= (300 × $0.50) - (300 × $0.08) - (300 × $0.10)
= $150 - $24 - $30
= $96
