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Burton Trucking Company Case Analysis Essay

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Benedictine University

Managerial Economics

Individual Work-1

Unit Tutor: Char Lee Racine
Student name：Gu Haizhen (Vivian)
Date of issue: September 6, 2010
Date of submission: September 13, 2010

Contents

I. 3
II. 4
III. 7
VI. 9

Technical problems

I.

During a year of operation, a firm collects $175,000 in revenue and spends $80,000 on raw materials, labor expense, utilities, and rent. The owners of the firm have provided $500,000 of their own money to the firm instead of investing the money and earning a 14 percent annual rate of return.

a. The explicit costs of the firm are $80,000. The implicit costs are $70,000. Total economic cost is …show more content…

Recently, Burton was boasting to some fellow truckers that his revenues were typically $25,000 per month, while his operating costs (fuels, maintenance, and depreciation) amounted to only $18,000 per month. Tractor-trailer rigs identical to Burton’s rig rent for $15,000 per month. If Burton was driving trucks for one of the competing trucking firms, he would earn $5,000 per month.

a. How much are Burton Cummings’s explicit costs per month? How much are his implicit costs per month?
b. What is the dollar amount of the opportunity cost of the resources used by Burton Cummings each month?
c. Burton is proud of the fact that he is generating a net cash flows of $7,000 (=$25,000 - $18,000) per month, since he would be earning only $5,000 per month if he were working for a trucking firm. What advice would you give Burton Cummings?

a. Explicit cost = $18,000 Implicit cost = $350,000

b. Opportunity cost = market – supplied resources (explicit cost) + owner – supplied resources (implicit cost) = 18,000 + 350,000 = $368,000

c. accounting cost =$7,000 economic profit = total revenue – total economic cost = total revenue – explicit cost – implicit cost = 25,000 – 18,000 – 350,000 = $ - 343,000

It can be known that his economic profit of per month is negative. Since the owners of firms must cover the costs of all

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