A Firm Pays $50,000 for a Machine That Is Used

question 171

Multiple Choice

A firm pays $50,000 for a machine that is used in production for one year,after which it is sold for $40,000 to another firm.The $10,000 difference is

• A) an explicit cost of production.
• B) economic depreciation, an implicit cost of production.
• C) normal profit.
• D) not counted as an economic cost of production.
• E) not an opportunity cost because it is not actually paid.

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Definitions:

Machine-Hour

A measure of production output or activity based on the number of hours a machine is operated.

Fixed Manufacturing Overhead

A consistent cost incurred during manufacturing that does not vary with the level of production, such as salaries of managers or rent.

Cooling Coil

A component used in refrigeration and air conditioning systems to transfer heat and cool down air or liquids passing through it.

Predetermined Overhead Rate

A rate calculated by dividing the estimated total manufacturing overhead cost by the estimated job base for a specific period, used to allocate overhead costs to products.