Question 15(i) Which of the following is(are) correct about how accountants and economists consider costs?Accountants consider only implicit costsEconomists consider both explicit and implicit costsA: 1 onlyB: 2 onlyC: Both 1 and 2D: Neither 1 nor 2(ii) Which of the following statements is(are) correct for a monopoly firm and a competitive firm?Both firms earn economic profit in the long run.Both firms aim to maximize profit and produce at P = MC. A: 1 onlyB: 2 onlyC: Both 1 and 2D: Neither 1 nor 2

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Asked Dec 17, 2019
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Question 15

(i) Which of the following is(are) correct about how accountants and economists consider costs?

  1. Accountants consider only implicit costs
  2. Economists consider both explicit and implicit costs

A: 1 only

B: 2 only

C: Both 1 and 2

D: Neither 1 nor 2

(ii) Which of the following statements is(are) correct for a monopoly firm and a competitive firm?

  1. Both firms earn economic profit in the long run.
  2. Both firms aim to maximize profit and produce at P = MC.

 

A: 1 only

B: 2 only

C: Both 1 and 2

D: Neither 1 nor 2

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Expert Answer

Step 1

(i)

There are two different types of costs which are the explicit costs and the implicit costs. The explicit costs are the nominal money value of the costs incurred to produce a commodity in the market. This means that the cost of labor, raw materials and technology used to produce the commodity are summated to calculate the explicit costs of production. The implicit costs of production are the opportunity costs associated with the production. The accountants only measures the explicit costs of production and are not keen to view the implicit costs of production whereas the economists do considers the implicit as well as the explicit costs of production to make a decision. Thus, it means that the option ‘B’ is the correct answer.

Step 2

(ii)

The monopoly is a market structure which is characterized by the single producer for the commodity without any close substitutes available in the market and the complete market power to the single seller which makes the monopolist the price maker and quantity decision taker in the market. The competitive firm means that there will be many competitors in the economy producing the similar products which are close substitutes of the firm. Thus, the size of market control for the competitive firm will be very less and this makes the competitive firm the price takers and not price makers.

Step 3

The monopoly market will have strong barriers that prevent the entry of new firms into the market. This means that when the monopoly firm makes economic profit in the short run, it will continue to earn the profit in the long run also because of the restricted entry into the market....

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