Economics Paper

Running Head: Economics Paper
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Introduction
For any organization to operate effectively it should incur daily costs. These costs consist of variable costs, fixed costs, sunk costs, opportunity costs and marginal costs. Since the main aim of a business is to maximize revenue and minimize losses, each and every organization endeavours to minimize costs and maximize on its profits. This paper will examine the case of Gordon Blue which provides facilities for training in specialist cooking skills. It will discuss what opportunity costs, of variable costs, fixed costs, sunk costs, marginal costs and what they are in relation to the case. Additionally, it will calculate the break-even point as well as provide recommendations for Gordon Blue.
Gordon Blue Case analysis
The opportunity cost of a resource refers to the highest value of the next best alternative of the resource. Whenever one has to make a decision between two or more alternatives, then always there is an opportunity cost incurred. Opportunity cost is not always monetary. For instance, if one spends time shopping for a book, and the next best alternative to this activity is watching a movie at home, then the time spent shopping for a book cannot be spent on watching the movie. This means that the opportunity cost of shopping for the book is the amount spent in the purchase plus the pleasure that could have been attained had he decided to watch the movie. The term opportunity" is redundant as it includes the cost of the resource used ( Henderson, 2008). As discussed above opportunity Cost is the true cost of supplying the course. In this case opportunity costs should include not only costs explicitly paid out but also the foregone lease income for the venue, $50,000.
Fixed Costs are not dependent of the company output are referred to as fixed costs. They are expenses incurred by a company and are independent of any business activities that the company engages in. They remain constant all through the necessary range and have no relevance in making of output decisions. An example is the lease on a building. Whether the company makes any sales or profits within the month does not matter. Payment of the full lease for that month is still due. Fixed costs therefore can be described as costs that do not vary with the number of students. In relation to the question, the fixed costs will consists of $80,000 preparation costs, the $50,000 for the instructor, and the $50,000 cost of the venue a total of $180,000. Sunk Costs are Fixed Costs that are irrecoverable. i.e. they are paid whether the course is provided or not. In this case the $80,000 for preparation, advertising, processing, etc is a sunk cost.
Variables costs are the corporate expenses which vary depending on the production ou...