Part 1: During a year of operation, a firm collects $450,000 in revenue and spends $100,000 on labor expenses, raw materials, rent, and utilities. The firm’s owner has provided $750,000 of her own money instead of investing the money and earning a 10 percent annual rate of return. The accounting costs of the firm are $_______________ The opportunity cost is $_______________ Total economic costs are $_______________ Accounting profits are $_______________ Economic profits are $_______________
This question contains two parts and they are independent of each other.
Part 1: During a year of operation, a firm collects $450,000 in revenue and spends $100,000 on labor expenses, raw materials, rent, and utilities. The firm’s owner has provided $750,000 of her own money instead of investing the money and earning a 10 percent annual
The accounting costs of the firm are $_______________
The
Total economic costs are $_______________
Accounting profits are $_______________
Economic profits are $_______________
Part 2: Higher personal taxes in the U.S. will affect personal disposable income which in turn will affect the domestic demand for goods and services. Costs of production, however, continue declining resulting from outsourcing overseas. What do you expect the U.S. output and prices in the near future? Assume we are moving from the old equilibrium to a new equilibrium. Please state clearly your assumptions and include a graph to support your answer.
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