Tim lives in Dallas and runs a business that sells pianos. In an average year, he receives $793,000 from selling pianos. 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 Tim does not operate this piano 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 piano business. Identify each of Tim's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The salary Tim could earn if he worked as a financial advisor The rental income Tim could receive if he chose to rent out his showroom The wages and utility bills that Tim pays The wholesale cost for the pianos that Tim pays the manufacturer Complete the following table by determining Tim's accounting and economic profit of his piano business. Accounting Profit Economic Profit Alternatively, the economic profit he would earn as a financial advisor would be $ Profit (Dollars) If Tim's goal is to maximize his economic profit, he True or false: Tim is earning a normal profit. O True False O stay in the piano business.
Tim lives in Dallas and runs a business that sells pianos. In an average year, he receives $793,000 from selling pianos. 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 Tim does not operate this piano 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 piano business. Identify each of Tim's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The salary Tim could earn if he worked as a financial advisor The rental income Tim could receive if he chose to rent out his showroom The wages and utility bills that Tim pays The wholesale cost for the pianos that Tim pays the manufacturer Complete the following table by determining Tim's accounting and economic profit of his piano business. Accounting Profit Economic Profit Alternatively, the economic profit he would earn as a financial advisor would be $ Profit (Dollars) If Tim's goal is to maximize his economic profit, he True or false: Tim is earning a normal profit. O True False O stay in the piano business.
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.7P
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Transcribed Image Text:Tim lives in Dallas and runs a business that sells pianos. In an average year, he receives $793,000 from selling pianos. 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 Tim does not
operate this piano 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 piano business.
Identify each of Tim's costs in the following table as either an implicit cost or an explicit cost of selling pianos.
Implicit Cost
Explicit Cost
The salary Tim could earn if he worked as a financial advisor
The rental income Tim could receive if he chose to rent out his showroom
The wages and utility bills that Tim pays
The wholesale cost for the pianos that Tim pays the manufacturer
Complete the following table by determining Tim's accounting and economic profit of his piano business.
Profit
(Dollars)
Accounting Profit
Economic Profit
Alternatively, the economic profit he would earn as a financial advisor would be $
If Tim's goal is to maximize his economic profit, he
True or false: Tim is earning a normal profit.
O True
O
False
stay in the piano business.
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