ECON 212 Unit 4 Individual Project Template – Fixed explicit costs
Business Finance
Fixed explicit costs (annually):
- Technology (Web design and maintenance) $5,000
- Postage and handling $1,000
- Miscellaneous $5,000
- Equipment $4,000
- Overhead $1,000
TOTAL Explicit Fixed Costs (annual) $16,000
Fixed implicit costs (annually):
- Lost wages from job given up (annual) $50,000
Variable cost = $20 per book.
Part 1:
Assume that the equation for demand is Q = 40,000 – 500P, where
- Q = the number of cookbooks sold per year
- P = the retail price of books
Using the information above, fill in the attached chart (note that quantity is just the solution of the demand curve above; the first two lines of the table have been completed for you – you need to complete all other lines in the table):
Indicate the maximum profit price and quantity by highlighting those particular values with red font.
Part 2:
After you complete the chart (either fill in the empty boxes in the table above or create an Excel file), copy and paste the table into a Word file. This table should be at the top of your assignment. Then answer the following questions (based on the chart and your understanding of this material) in 600-800 words:
- Why, according to an economist, should implicit costs (i.e., lost wages from job given up) be included in the total cost of your product to compute economic profit?
- Why does price elasticity of demand change as you move up the demand curve (more specifically, as the price of the product increases)?
- Explain in your own words why MR = MC produces maximum profit for a company.
