Economic concepts - Assignment Example

It is easy to identify, recognize and account for the explicit cost because these costs are documented in the company’s statement. Additionally, physical objects and money based transactions are usually involved in explicit costs (Arnold, 2008). Implicit cost: Implicit costs are also known as implied costs, economic costs, or notational costs. It is directly opposite to the explicit cost. Implicit costs are not actually exposed or accounted as costs. Implicit costs are commonly explained as opportunity costs or the loss of an opportunity in a specified time or condition.

Implicit costs are usually related with the intangibles assets and often cannot be traced or documented. These costs include: waste of potential opportunities, wastage of time, and profit wastage. Implicit costs give up the potential paybacks and agreements in a certain transaction of business. Just place, an implicit cost is the loss of a potential profits or assets that did not come about (Gartner, 2009). QUESTION # 2 U shape cost curve: It is a representation of how the average cost for manufacturing a single unit changes over with the passage of time.

The average cost of manufacturing per unit is high in the beginning and decreases as overall production increases. It is because of the fact that the same fixed cost is shared by more units or product. However, if the marginal cost of producing one more unit increases the overall cost again starts to increase because of the diminishing returns. Hence, when it is plotted on a chart, the cost curve seems like the letter U and for this reason is known as U shaped cost curve (Leamer, 2009). Long run cost curve: The long run cost curve is also called cost function in the microeconomic theory.

It relates the cost of production to the amount of production and shows the implications of the long run decisions and proceedings on the cost of production of the company. The long run cost curve is the combination of several short run average cost curves and is generally U shaped because of the law of diminishing returns (Mankiw, 2009). Average cost curve: The average cost or unit cost is identified by dividing the total cost of production to total number of units produced in the company. An average cost can vary with passage of time with the increase or decrease in the cost of production.

The average cost curve is also U shaped because of the fixed cost being shared by increasing products and at the same time marginal cost increasing because of the diminishing returns (Wessels, 2000). QUESTION # 3 Law of diminishing return: This concept of economics stating that, as the quantity of new input (workers, materials, etc.) increases, the marginal product of an added input at same position will be less than the marginal product of the preceding input. For example, consider a plant that uses manual workers to manufacture its items for consumption.

If every other factors of production stay constant, at one stage each added worker will give less output then the preceding worker. When this stage is confronted then each extra worker will give less and less returns. If new workers are continuously added, the factory will in the end turn out to be so crowded that added workers in point of fact reduce the competence of the other workers, lessening the production of the plant. Another general example of law of diminishing returns is described as follow: If the population of the city increased then per capita income is decreased. And