Hubert lives in Detroit and runs a business that sells boats. In an average year, he receives $728,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $428,000; he also pays wages and utility bills totaling $262,000. He owns his showroom; if he chooses to rent it out, he will receive $18,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Hubert does not operate this boat business, he can work as a paralegal, receive an annual salary of $21,000 with no additional monetary costs, and rent out his showroom at the $18,000 per year rate. No other costs are incurred in running this boat business. Identify each of Hubert’s costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The wholesale cost for the boats that Hubert pays the manufacturer The wages and utility bills that Hubert pays The rental income Hubert could receive if he chose to rent out his showroom The salary Hubert could earn if he worked as a paralegal Complete the following table by determining Hubert’s accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter7: Production, Inputs, And Cost: Building Blocks For Supply Analysis

Section: Chapter Questions

Problem 9TY

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Definition of economic costs

Hubert lives in Detroit and runs a business that sells boats. In an average year, he receives $728,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $428,000; he also pays wages and utility bills totaling $262,000. He owns his showroom; if he chooses to rent it out, he will receive $18,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Hubert does not operate this boat business, he can work as a paralegal, receive an annual salary of $21,000 with no additional monetary costs, and rent out his showroom at the $18,000 per year rate. No other costs are incurred in running this boat business.

Identify each of Hubert’s costs in the following table as either an implicit cost or an explicit cost of selling boats.

	Implicit Cost	Explicit Cost
The wholesale cost for the boats that Hubert pays the manufacturer
The wages and utility bills that Hubert pays
The rental income Hubert could receive if he chose to rent out his showroom
The salary Hubert could earn if he worked as a paralegal

Complete the following table by determining Hubert’s accounting and economic profit of his boat business.

	Profit
(Dollars)
Accounting Profit
Economic Profit

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