The Following Terms Are Used to Describe Various Economic Characteristics

question 7

Essay

The following terms are used to describe various economic characteristics of costs.
$\begin{array} { l r } \text { Opportunity cost } & \text { Differential cost } \\\text { Out-of-pocket cost } & \text { Marginal cost } \\\text { Sunk cost } & \text { Average cost }\end{array}$ Required:
Choose one of the preceding terms to characterize each of the amounts described below. Each term may be used only once.
A. The cost of including one extra child in a day-care center.
B. The cost of merchandise inventory purchased five years ago. The goods are now obsolete.
C. The cost of feeding 300 children in a public school cafeteria is $450 per day, or $1.50 per child per day. What economic term describes this $1.50 cost?
D. The management of a high-rise office building uses 3,000 square feet of space in the building for its own administrative functions. This space could be rented for $30,000. What economic term describes this $30,000 of lost rental revenue?
E. The cost of building an automated assembly line in a factory is $700,000; a manually operated assembly line would cost $250,000. What economic term is used to describe the $450,000 variation between these two amounts?
F. Refer to the preceding question and assume that the firm is currently building the assembly line for $700,000. What economic term is used to describe the $700,000 construction cost?

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Definitions:

Create Invoice

The process of generating a document that itemizes and records a transaction between a seller and a buyer.

Purchase Order

A formal document issued by a buyer to a seller, detailing the products or services ordered at agreed-upon prices.

Sales Cycle

The process that companies follow from the initial contact with a potential customer to the closing of a sale, including steps such as prospecting, communicating, negotiating, and fulfilling orders.

Merchandising Company

A business entity that purchases goods in large quantities from manufacturers or wholesalers and then sells them in smaller quantities to consumers.