3. Economic Cost is less than Accounting Cost. Do you agree? Explain.

No, I do not agree with this statement.

Accounting Cost
Accounting costs measure the monetary value of taking an action. They are the explicit costs
involved with the business.

For example, if a company wants to open a satellite office in a new market, they must make
investments, such as new hires, computer equipment, software systems, rent, and inventory. If
the total spent on all these areas is $700,000, then that is the accounting cost.

Economic Cost
Economic costs, also known as opportunity costs, look at the potential difference between
taking one action over another. They measure both the explicit and implicit costs of following
a strategy.

In the example above, a company spent $700,000 to open a new satellite office at location A.
But what if:

Did they open a satellite office at location B?

They bought the office location, but leased it to another company?
They did not open the new office, but instead, put more money into the main location?
The total of the accounting costs, plus the differences in costs between choosing the other
options instead of option A, is the economic cost. Economic costs include both the explicit and
implicit costs of an action.

So always economic cost is higher than the accounting cost as it includes both the implicit and
explicit cost.

5. Distinguish between economies of scale and economies of scope. Use real-world examples to
explain your answer.
Let us look at some of the points of difference between the economies of scale and economies of
scope.

Criteria Economies of scale Economies of scope

Definition Economies of scale is a Economies of scope is an

concept of Economics that
suggests that when a
company reaches a point
where the production cost
is decreasing due to bulk
production
economic concept that
suggests that the
production of various
products can lead to a
reduction in cost

Cost reduction Reduces the cost of one

product Reduces the cost by the
production of a variety of
products

Deals with Production of goods in bulk Production of a variety of

products within the same
task
 Reduction occurs due to Bulk production of any Reduction occurs due to a
product variety of goods produced
during the production
process.

Approach Old Approach Relatively new approach

Resource Utilization More resources are utilized Fewer resources are

utilized

6. The learning curve is an important thing in studying. Describe the learning curve with suitable
examples.

8. Explain the shape of iso-quant curves when the two inputs are perfect substitutes and perfect
complements.
The straight-line and right-angle isoquants are extreme scenarios that represent inputs that perfect
substitutes and perfect complements respectively. When both inputs are perfect substitutes,
isoquants are straight lines and have a constant slope because one input can be replaced with the
other at the same rate.