Opportunity cost

Mr Wong is a lawyer. He rents an office in Central at $10,000 per month and employs Mary as his secretary at $8000 per month

Explain whether Mr Wong's cost of using the office will be changed

(a)

(1) if he decides to extend his office hours to 7pm

(2)if Mary's salary is increased to $10,000 per month

(b)Use the circular flow model to explain the eonomic roles performed by Mr Wong

1 個解答

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  • 1 十年 前
    最佳解答

    (a) (1)

    no, Cost is the highest-valued option forgone. Since the cost of using the office will be the alternative use of $10000. However this $10000 is sunk cost, that means it is not the option available NOW. So even you extend the office to 7 p.m. It will not affect the cost of using the office. Except you include the other expense such as the eletricity. But this question dose not provide. So I'm quite sure the cost of using the office will not change.

    (2)

    No, too. Since the cost of using the office will be the alternative use of $10000. Mary's salary is not the cost of using the office, but the cost of operating the business. Therefore it will affect the cost of operating ,but not the cost of using the office.

    (b)

    Circular flow model include firm and household.

    Money Flow

    Since Mr Wong perfomance the firm, Mary salary perform the household. Mr Wong employ Mary ,so he has to pay the salary which is the cost of production of Mr Wong. Mary provide the service to Mr Wong, so he receive the income from Mr. Wong.

    And the rent is the cost of production to Mr wong, but it is the income for lender.

    Real Flow

    Mary provide the factor of production (service) to Mr Wong, Then Mr wong provide the final goods and service to Mary.

    If still has question, you can ask again~

    2006-12-04 22:28:08 補充:

    補充番(a) 1 Because you extend to 7 p.m will not increase the rental cost( Fixed cost) So your cost of using the business will not change.

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