Expert Group A

1. What is cost?
Cost is an amount that has to be paid or given up in order to get something. In business, cost is usually a
monetary valuation of effort, materials, resources, time and utilities consumed, risk incurred and opportunity
forgone in production and delivery of good or service. All expense are cost but not all cost are expense.
From a seller’s point of view, cost is the amount of money that is spent to produce a good or product. From a
buyer’s point of view the cost of a product is also known as the price. This is the amount that the seller charges
for a product, and it includes both the production cost and the mark-up, which is added by the seller in order
to make a profit.

2. Distinguish between Explicit and Implicit cost

Explicit Cost – A cost incurred when an actual payment is made. Explicit cost is direct payment made to
others in the course of running a business, such as wage, rent and materials as opposed to implicit costs, which
are those where no actual payment is made.

Implicit Cost – A cost that represents the value of resources used in production for which no actual payment
is made (opportunity cost). Implicit cost is opportunity cost equal to what a firm must give up in order to use
a factor of production for which it already owns and thus does not pay rent.

Comparison Chart
3. Why accounting profit is larger compare to economic profit?

Accounting Profit – Difference between TR and TC. Accounting profit is a company's total earnings,
calculated according to generally accepted accounting principles (GAAP). It includes the explicit costs of
doing business, such as operating expenses, depreciation, interest and taxes.
Accounting profit = total monetary revenue- total costs.

Economic Profit – Difference between TR and TC include both explicit and implicit cost. An economic profit
or loss is the difference between the revenue received from the sale of an output and the opportunity cost of
the inputs used. In calculating economic profit, opportunity costs are deducted from revenues earned.
Economic profit = total revenue - (explicit costs + implicit costs)

4. What is the difference between short run and long run?

Short run – In the short run, there are both fixed and variable costs. A period of time in which some
inputs in the production process are fixed. Fixed costs have no impact of short run costs, only variable costs
and revenues affect the short run production.
Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC)

Long run - In the long run, there are no fixed costs. The time period in which all factors of production can
be different. The land, labor, capital goods, and entrepreneurship all vary to reach the long run cost of
producing a good or service. The long run is a planning and implementation stage for producers.
Expert Group B
Quantity of Pizza Quantity of workers Quantity of Marginal Physical Average Product (AP)
Ovens (Labor) Pizza Product (MPP)

2 0 0 - -
2 1 200 200 200
2 2 450 250 225
2 3 550 100 183.33
2 4 600 50 150
2 5 625 25 125
2 6 640 15 106.67

𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 𝑇𝑜𝑡𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡

a) MPP = AP =
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑖𝑛𝑝𝑢𝑡 𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑝𝑢𝑡 𝑜𝑓 𝒍𝒂𝒃𝒐𝒓

b) Fixed input = Oven Variable Input = Labor

c) The production function is the relationship between input and output that is the technology expressed
numerically or mathematically. A production function show us units of total product as a function of unit
of inputs. In economics, a production function relates physical output of a production process to physical
inputs or factors of production. The example of production function is total product, MPP, AP.

d) MPP and AP curve can be derived from Total Product curve. AP is at its maximum at the point of
intersection with MPP. AP follow MPP. If MPP > AP, AP rises or reverse.
Expert Group C
Quantity of Quantity of Quantity of Cost of Cost of Total Cost Cost per Marginal
Pizza Ovens workers Pizza Pizza workers of Pizza pizza Cost (MC)
(Labor) Ovens (RM) (RM) (RM) (RM)

2 0 0 RM800 0 800 - -
2 1 200 RM800 650 1450 7.25 3.25
2 2 450 RM800 1300 2100 4.67 2.60
2 3 550 RM800 1950 2750 5.00 6.50
2 4 600 RM800 2600 3400 5.67 13.00
2 5 625 RM800 3250 4050 6.48 26.00
2 6 640 RM800 3900 4700 7.34 43.33

𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡

a) MC =
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦

𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
b) Average cost =
𝑇𝑜𝑡𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
The different between AC and MC is marginal cost is the change in the total cost when the quantity
produced changes by one unit but AC is the average cost is the total cost divided by the number of goods
produced.

 When the average cost decrease, the marginal cost is less than the average cost.
 When the average cost increases, the marginal cost is greater than the average cost.
 When the average cost stays the same (is at a minimum or maximum), the marginal cost equals the average
cost.

c)
Quantity of Cost of Pizza Cost of workers Average Fixed Average Variable
Pizza Ovens (RM) Cost (AFC) (RM) Cost (AVC) (RM)
0 RM800 0 - -
200 RM800 650 4.00 3.25
450 RM800 1300 1.78 2.89
550 RM800 1950 1.45 3.55
600 RM800 2600 1.33 4.33
625 RM800 3250 1.28 5.20
640 RM800 3900 1.25 6.09

d)