Clancy lives in San Francisco and runs a business that sells pianos. In an average year, he receives $704,000 from selling pianos. 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 Clancy does not operate this piano 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 piano business. Identify each of Clancy's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The wages and utility bills that Clancy pays The rental income Clancy could receive if he chose to rent out his showroom The salary Clancy could earn if he worked as an accountant The wholesale cost for the pianos that Clancy pays the manufacturer Complete the following table by determining Clancy's accounting and economic profit of his piano business. Profit (Dollars) Accounting Profit Economic Profit
Clancy lives in San Francisco and runs a business that sells pianos. In an average year, he receives $704,000 from selling pianos. 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 Clancy does not operate this piano 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 piano business. Identify each of Clancy's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The wages and utility bills that Clancy pays The rental income Clancy could receive if he chose to rent out his showroom The salary Clancy could earn if he worked as an accountant The wholesale cost for the pianos that Clancy pays the manufacturer Complete the following table by determining Clancy's accounting and economic profit of his piano business. Profit (Dollars) Accounting Profit Economic Profit
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter27: Investment, The Capital Market, And The Wealth Of Nations
Section: Chapter Questions
Problem 13CQ
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definition of economic costs
Transcribed Image Text:Clancy lives in San Francisco and runs a business that sells pianos. In an average year, he receives $704,000 from selling pianos. 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
Clancy does not operate this piano 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 piano business.
Identify each of Clancy's costs in the following table as either an implicit cost or an explicit cost of selling pianos.
Implicit Cost
Explicit Cost
The wages and utility bills that Clancy pays
The rental income Clancy could receive if he chose to rent out his showroom
The salary Clancy could earn if he worked as an accountant
The wholesale cost for the pianos that Clancy pays the manufacturer
Complete the following table by determining Clancy's accounting and economic profit of his piano business.
Profit
(Dollars)
Accounting Profit
Economic Profit
O00O
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