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1. Definition of economic costs Larry lives in New York City and runs a business that sells boats. In an average year, he receives $704,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $404,000; he also pays wages and utility bills totaling $286,000. He owns his showroom; if he chooses to rent it out, he will receive $3,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Larry does not operate this boat business, he can work as an accountant, receive an annual salary of $20,000 with no additional monetary costs, and rent out his showroom at the $3,000 per year rate. No other costs are incurred in running this boat business. Identify each of Larry's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The rental income Larry could receive if he chose to rent out his showroom The wholesale cost for the boats that Larry pays the manufacturer The wages and utility bills that Larry pays The salary Larry could earn if he worked as an accountant Complete the following table by determining Larry's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit O oo O

1. Definition of economic costs Larry lives in New York City and runs a business that sells boats. In an average year, he receives $704,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $404,000; he also pays wages and utility bills totaling $286,000. He owns his showroom; if he chooses to rent it out, he will receive $3,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Larry does not operate this boat business, he can work as an accountant, receive an annual salary of $20,000 with no additional monetary costs, and rent out his showroom at the $3,000 per year rate. No other costs are incurred in running this boat business. Identify each of Larry's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The rental income Larry could receive if he chose to rent out his showroom The wholesale cost for the boats that Larry pays the manufacturer The wages and utility bills that Larry pays The salary Larry could earn if he worked as an accountant Complete the following table by determining Larry's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit O oo O

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter12: The Cost Of Production
Section: Chapter Questions
Problem 5QR
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1. Definition of economic costs Larry lives in New York City and runs a business that sells boats. In an average year, he receives $704,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $404,000; he also pays wages and utility bills totaling $286,000. He owns his showroom; if he chooses to rent it out, he will receive $3,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Larry does not operate this boat business, he can work as an accountant, receive an annual salary of $20,000 with no additional monetary costs, and rent out his showroom at the $3,000 per year rate. No other costs are incurred in running this boat business. Identify each of Larry's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The rental income Larry could receive if he chose to rent out his showroom The wholesale cost for the boats that Larry pays the manufacturer The wages and utility bills that Larry pays The salary Larry could earn if he worked as an accountant Complete the following table by determining Larry's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit O O
Transcribed Image Text:1. Definition of economic costs Larry lives in New York City and runs a business that sells boats. In an average year, he receives $704,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $404,000; he also pays wages and utility bills totaling $286,000. He owns his showroom; if he chooses to rent it out, he will receive $3,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Larry does not operate this boat business, he can work as an accountant, receive an annual salary of $20,000 with no additional monetary costs, and rent out his showroom at the $3,000 per year rate. No other costs are incurred in running this boat business. Identify each of Larry's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The rental income Larry could receive if he chose to rent out his showroom The wholesale cost for the boats that Larry pays the manufacturer The wages and utility bills that Larry pays The salary Larry could earn if he worked as an accountant Complete the following table by determining Larry's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit O O
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