Problem 6.1. Tommy runs a small metal shop fabricating custom gates and other decorative work. Tommy has one assistant paid $48,000 per year, annual rent for the shop of $20,000 per year, and annual materials cost of $80,000 per year. He has $100,000 of his own funds invested in equipment (tools, furnace, anvils) that could earn him $10,000 per year if alternatively invested. Total annual sales revenue for the firm's products is $300,000. Tommy could earn 875,000 per year working for a competing metal firm, and he estimates his entrepreneurial skills to be worth $5,000 per year. (a) Which of the following are explicit costs for the firm? Rent Yes IAb Assistant Yes Equipment Yes Entrepreneurial skill (b) Calculate the accounting profit for Tommy's firm. (c) Calculate the economic profit for Tommy's firm. (d) and If these figures cover all costs and benefits, at what salary would Tommy close his business and work for a competitor? go

Problem 6.1. Tommy runs a small metal shop fabricating custom gates and other decorative work. Tommy has one assistant paid $48,000 per year, annual rent for the shop of $20,000 per year, and annual materials cost of $80,000 per year. He has $100,000 of his own funds invested in equipment (tools, furnace, anvils) that could earn him $10,000 per year if alternatively invested. Total annual sales revenue for the firm's products is $300,000. Tommy could earn 875,000 per year working for a competing metal firm, and he estimates his entrepreneurial skills to be worth $5,000 per year. (a) Which of the following are explicit costs for the firm? Rent Yes IAb Assistant Yes Equipment Yes Entrepreneurial skill (b) Calculate the accounting profit for Tommy's firm. (c) Calculate the economic profit for Tommy's firm. (d) and If these figures cover all costs and benefits, at what salary would Tommy close his business and work for a competitor? go

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 5E

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