Name: Dominguez, Ronald Sasot Subject: Basic Microeconomics

Section: AC 104 Date: November 17, 2021

1. Differentiate accounting costs and economic costs.

To differentiate accounting and economic costs, I would give an example. I am a

business owner who runs a film production firm named RED TV at my building. Thus, I am not
paying any rent for my business because I own the building. Now the question arises, do I
consider the cost of the space in my records?

In accounting costs, no, you should not because there is no incurred expense.
Accounting costs include the costs that are paid financially by the business. These are
expenditures made for output production or standard business transactions. Therefore,
accounting costs only consider explicit costs of a business because it records out-of-pocket
payments.

In terms of economic costs, yes, you should consider the cost of space because if I did
not use the area, I would have earned rental income. Economic costs include both accounting
costs and opportunity costs. It considers the expenses for using resources not owned by the
business and the opportunity costs a firm makes when it uses its own resources. Economic
costs include not only financial payments but also the “what ifs” and missed financial
opportunities. Hence, economic costs are the total opportunity costs because it considers both
explicit and implicit costs of a business.

2. Can fixed cost be considered a sunk cost? Discuss through an example.

Yes, a fixed cost can be considered a sunk cost but not all the time. There are fixed
costs that are recovered, resold, or you will get something in return for your expenditure.
Although both costs result in an outflow of cash, one distinct trait of a sunk cost is being
irrecoverable. A fixed cost can be considered a sunk cost when it is a fixed cost in nature but
becomes irrecoverable due to specific agreements or instances.

For example, I signed up for a gym membership. In the contract, it says that my payment
was non-refundable. However, I had the worst experience with the gym equipment and coach
on just the first day. Because of that, I looked for a different gym and signed for membership
again. Based on that scenario, the gym membership was naturally a fixed cost but is now
considered a sunk cost. Even though I switched to another option, I cannot recover the money I
have spent because the gym membership cannot be refunded as agreed.

3. Cite a personal experience where you considered opportunity cost in making a

decision. Discuss your considerations.

We are regularly letting go of opportunities in every decision we make, big or small.

These opportunities are often related to factors like price, time, effort, and utility. Those factors
are often inversely related, needing to be weighed in terms of preferences or priorities.

Thus, you have to make sacrifices to come to a decision.

This was the case for me in finding the school for my college education. I had two
options: De La Salle University - Dasmariñas or Lyceum of the Philippines University Cavite.
Both of them had good reviews from people, so they are equal in terms of utility. DLSU – D is
closer than LPUC from my home, which is a plus for DLSU – D. However, the price of
something has always played the most significant part in my decision-making process. I like
being able to save money by finding alternatives. If I deem something too expensive for what it
offers, I would immediately refuse. In my defense, a lower price does not necessarily mean
cheaper quality. However, I still recommend assessing the quality before purchasing the less
expensive option. Back to my two choices, DLSU – D’s initial tuition fee was ₱65,000, and
LPUC was ₱43,000. My family does not put any pressure on me because they are okay with
whatever I choose. After a long self-deliberation, I finally concluded. I almost enrolled in DLSU –
D, but that would mean I would have an opportunity cost amounting to ₱22,000. That
opportunity cost suddenly made me change my decision because the amount I would forego
was too much. I would be bothered a lot if I ignored that amount. Therefore, I decided to go to
LPUC. Although it is much farther from my house, I chose it because the quality of education is
on par with the other option and less expensive. So far, I can say that choosing LPUC was the
right option for me.