Carlos lives in Denver and runs a business that sells guitars. In an average year, he receives $793,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $430,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $15,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Carlos does not operate this guitar business, he can work as a financial advisor and receive an annual salary of $50,000 with no additional monetary costs. No other cost are incurred in running this guitar business. Identify each of Carlos's costs in the following table as either an implicit cost or an explicit cost of selling guitars. Implicit Cost Explicit Cost The salary Carlos could earn if he worked as a financial advisor The rental income Carlos could receive if he chose to rent out his showroom The wholesale cost for the guitars that Carlos pays the manufacturer The wages and utility bills that Carlos pays Complete the following table by determining Carlos's accounting and economic profit of his guitar business. Profit (Dollars) Accounting Profit Economic Profit Alternatively, the economic profit he would earn as a financial advisor would be $ If Carlos's goal is to maximize his economic profit, he stay in the guitar business.
Carlos lives in Denver and runs a business that sells guitars. In an average year, he receives $793,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $430,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $15,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Carlos does not operate this guitar business, he can work as a financial advisor and receive an annual salary of $50,000 with no additional monetary costs. No other cost are incurred in running this guitar business. Identify each of Carlos's costs in the following table as either an implicit cost or an explicit cost of selling guitars. Implicit Cost Explicit Cost The salary Carlos could earn if he worked as a financial advisor The rental income Carlos could receive if he chose to rent out his showroom The wholesale cost for the guitars that Carlos pays the manufacturer The wages and utility bills that Carlos pays Complete the following table by determining Carlos's accounting and economic profit of his guitar business. Profit (Dollars) Accounting Profit Economic Profit Alternatively, the economic profit he would earn as a financial advisor would be $ If Carlos's goal is to maximize his economic profit, he stay in the guitar business.
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.5P
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Transcribed Image Text:Carlos lives in Denver and runs a business that sells guitars. In an average year, he receives $793,000 from selling guitars. Of this sales revenue, he
must pay the manufacturer a wholesale cost of $430,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to
rent it out, he will receive $15,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Carlos does not
operate this guitar business, he can work as a financial advisor and receive an annual salary of $50,000 with no additional monetary costs. No other costs
are incurred in running this guitar business.
Identify each of Carlos's costs in the following table as either an implicit cost or an explicit cost of selling guitars.
Implicit Cost
Explicit Cost
The salary Carlos could earn if he worked as a financial advisor
The rental income Carlos could receive if he chose to rent out his showroom
The wholesale cost for the guitars that Carlos pays the manufacturer
The wages and utility bills that Carlos pays
Complete the following table by determining Carlos's accounting and economic profit of his guitar business.
Profit
(Dollars)
Accounting Profit
Economic Profit
Alternatively, the economic profit he would earn as a financial advisor would be $
If Carlos's goal is to maximize his economic profit, he
stay in the guitar business.
000 O
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