a. In a business, provide two examples of explicit cost and two examples of implicit cost. Explain how these costs affect accounting and economic profit.
2 Marks
b. With relevant assumptions, use a numerical example to explain the significance of diminishing marginal returns to a firm. 3 Marks


 Do you agree with the following comment, “Firms are to continue production despite making economic loss in the short-run” Justify using diagram(s) in your explanation?   3 Marks 

Define game theory and apply the game theory matrix diagram to illustrate and explain a strategic decision YOU made 3 Marks 


 Why is it that in some countries even as real per capita gross domestic product increases, the welfare of many people does not improve? Explain by providing four (4) reasons.

Economist are predicting that stagflation could become an

Graphically represent and explain how stagflation can occur and highlight two main economic problems of stagflation. It is reported that the consumer price index has increased by 3 %. Does this mean that the cost of living of every Australian has increased by 7.3 %? Explain. 

Explain how changes in participation rate can impact the unemployment


Reserve bank around the world are increasing their cash rate.

Use appropriate terminology, explain how this is done and its impact on economic growth.

Answers to Above Questions

Answer 1: Before analysing the examples of implicit cost and explicit cost, it is important to understand these concepts. Implicit cost is defined as the opportunity cost of resources that are already owned by the business whereas explicit cost is also known as out of pocket cost for a firm. Examples of explicit cost are payment for wages, payment for rent etc. Examples of implicit cost are expanding a factory owned by the company, not taking up salary in order to pay the startup expenses.

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