ECO10250 Economics For Decision Making - Assessment 1 Session 2

Question 4

a.

1. Fill in the columns above (3 marks)
2. At what point do diminishing returns set in? Explain your answer. (1 mark)

4b. Assume that you have taken 12 months’ leave without pay from your full-time job as a dressmaker and set up a business ironing and repairing clothes. You have taken out a 12-month lease on a small shopfront in a suburban shopping centre. You have bought all the equipment you need for your business and arranged the fit-out of your premises to accommodate your work requirements. You have paid for these set-up costs out of your previous savings. You will not be able to buy any more equipment during the next 12 months. For the year, your total explicit costs are $25 500 and your implicit costs are $45 000.

1. Give some examples of your explicit costs.
2. Give some examples of your implicit costs.
3. In your short-run period, how would the law of diminishing returns be likely to apply if the business was doing so well that you started taking on extra staff members?
4. If your total revenue is $80 000, what is your economic profit?

Parts i) to iv) are worth 1.5 marks each.

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