William Howe must decide whether to start a business renting beach umbrellas at an ocean resort during June, July and August of next summer. He believes he can rent each umbrella to vacationers at $5 a day, and he intends to lease 50 umbrellas for the three- month period for$3,000. To operate this business, he does not have to hire anyone (but himself), and he has no expenses other than the leasing costs and a fee of $3,000 per month to rent the business location. Howe is a college student, and if he did not operate this business, he could earn $4,000 for the Three- month period doing construction work. (a) If there are 80 days during the summer when beach umbrellas are demanded and Howe rents All 50 of his umbrellas on each of these days, what will be his accounting profit for the Summer? (b) What will be his economic profit for the summer?

William Howe must decide whether to start a business renting beach umbrellas at an ocean resort during June, July and August of next summer. He believes he can rent each umbrella to vacationers at $5 a day, and he intends to lease 50 umbrellas for the three- month period for$3,000. To operate this business, he does not have to hire anyone (but himself), and he has no expenses other than the leasing costs and a fee of $3,000 per month to rent the business location. Howe is a college student, and if he did not operate this business, he could earn $4,000 for the Three- month period doing construction work. (a) If there are 80 days during the summer when beach umbrellas are demanded and Howe rents All 50 of his umbrellas on each of these days, what will be his accounting profit for the Summer? (b) What will be his economic profit for the summer?

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

Chapter14: Pricing Techniques And Analysis

Section: Chapter Questions

Problem 7E

See similar textbooks

Similar questions

You are considering opening a small flower store. You anticipate that you will earn $100,000 each year in revenue. It will cost you $30,000 each year to rent the space necessary to run your business. Additionally, you will need to spend $10,000 each year on flower seeds, utilities, and other expenses necessary to operate your flower shop. You have just graduated from college with a degree in economics and have received an offer to work for a firm with a yearly salary of $70,000. What is your anticipated economic profit of opening the flower shop?
Susan Jones has a job as a pharmacist earning $45,000 per year, and she is deciding whether to take another job as the manager of another pharmacy for $55,000 per year or to purchase a pharmacy that generates revenue of $350,000 per year. To purchase the pharmacy, Susan would have to use her $20,000 savings and borrow another $90,000 at an interest rate of 8% per year. The pharmacy that Susan is contemplating purchasing has additional expenses of $100,000 for prescription and non-prescription drugs and lines of women’s and men’s personal hygiene products and cosmetics; $45,000 for one full time person; $20,000 for one part time person; $12,000 for rent; $2,500 for electricity; $1,300 for natural gas; $1,200 for telecommunications; and depreciation and amortization expenses are $5,500. Assume that income and business taxes are 35% and the repayment of the principal of the loan does not start before three years. Also assume that revenue is expected to grow at 5% per year and expenses at…
Jim has been employed at Gold Key Realty at a salary of $2,000 per month during the past year. Because Jim is considered to be a top salesman, the manager of Gold key is offering him one of three salary plans for the next year: (1) a 25% raise to $2,500 per month; (2) a base salary of $1,000 plus $600 per house sold; or, (3) a straight commission of $1,000 per house sold. Over the past year, Jim has sold up to 6 homes in a month. Write down the month salary payoff table for Jim.
Solve the following. Show your complete solution. Use 3 methods of Economic Studies. A man formerly employed as a chief mechanic of an automobile repair shop has saved P1,000,000 which are now invested in certain securities giving him an annual dividend of 15%. He now plans to invest this amount in his own repair shop. In his present job, he is earning P25,000 per month, but he has to resign to run his own business. He will need the services of the following: 2 mechanics each earning P400 a day, and 8 helpers earning P200 a day. These men will work on average 300 days a year. His other expenses are the following: Rental = P30,000 a month Miscellaneous = P25,000 a month Sales tax = 3% of gross income Insurance = 2% The length of his lease is 5 years. If the average charge for each car repair by his shop is P1,000. Determine the number of cars he must service in one year so that he will obtain a profit of at least 20% on his investment?
Bloomswood Hotel is situated in Forkland, a picturesque town in the mountain region of a country. Allen Grabos works as a gourmet chef at the hotel that caters mostly to tourists. In a conversation with his wife, Delia Grabos, Allen claims that he is underpaid. The hotel makes up to $500,000 per year but his annual salary is only around $28,000 a year. Delia, however, is of the opinion that since new hotels and inns are expected to open in Forkland, the salaries paid to hotel staff in the area should increase. (1) Which of the following, if true, will weaken Delia's argument? A. Due to an increase in the number of fatal accidents recently in Forkland, tourism in the area was adversely affected. B. Tourism revenues in Forkland have been increasing consistently for the past 5 years. C. Spring and summer are the peak tourist seasons in Forkland. D. Bloomswood sold one of its seaside resorts because tourism in that part of the country declined substantially. E. Bloomswood…
Aoife has been working as a nurse in the local public hospital and earning an annual salary of €40,000. Due to increasing property prices, she decides to set up her own estate agency business. Aoife’s business expenses in the first year will include a €16,000 salary for a part-time administrator, €1,000 for various supplies, €3,000 in advertising and €5,000 to rent an office. For the rent, Aoife will use her own savings on which she was earning interest of 5% annually. Aoife is paid the difference between revenue and business expenses. Aoife’s implicit cost in the first year of setting up her own business is €16,000 €24,250 €40,000 €40,250 €75,000 What revenue would Aoife’s business have to earn in the first year in order for Aoife to be better off by €30,000relative to working as a nurse? €70,250 €95,250 €102,500 €55,000 €95,000
Mary Graham has worked as a real estate agent for Piedmont Properties for 15 years. Her annual income is approximately $100,000 per year. Mary is considering establishing her own real estate agency. She expects to generate revenues during the first year of $2,000,000. Salaries paid to her employees are expected to total $1,500,000. Operating expenses (i.e., rent, supplies, and utility services) are expected to total $250,000. To begin the business, Mary must borrow $500,000 from her bank at an interest rate of 15 percent. Equipment will cost Mary $50,000. At the end of one year, the value of this equipment will be $30,000 even though the depreciation expense for tax purposes is only $5,000 during the first year. Determine the (pretax) accounting profit for this venture. Determine the (pretax) economic profit for this venture. Which of the costs for this firm are explicit and which are implicit?
Sandra lives in Melbourne and runs a business that sells guitars. In an average year, she receives $2.6 millionfrom sales of guitars. Of this sales revenue, she must pay the manufacturer a wholesale cost of $1,400,000. She also pays wages and utility bills totalling $1,100,000. If she does not operate this guitar business, she can work in an accounting firm and receive an annual salary of $70,000. She owns her showroom. If she chooses to rent it out, she will receive $50,000 in rent per year. Assume that the value of this showroom does not depreciate during the year. No other costs are incurred in running this guitar business. What is Sandra’s accounting profit (used for tax purposes)? What is her economic profit?
Isabel runs her family's small pineapple processing plant, which takes fresh pineapples and cuts them into pineapple rings, spears, and chunks. The capital stock of the firm consists of three machines of various vintages, each of which can process the pineapples into any of the three different forms. All of the machines are in excellent condition, and all machines can be running at the same time. Cost of processing per pineapple Maximum total capacity (pineapples) per day Machine 1 $ 0.10 250 Machine 2 0.25 400 Machine 3 0.50 500 (A) Assume that "cost of processing" includes all labor and materials, including the owner's wages. Assume further that Isabel's family signed a long-term contract (20 years) with a service company to keep the machines in good repair for a fixed fee of $1,825 per year, or $5 per day.1) Derive the firm's marginal cost curve.2) Derive the firm's total cost curve.(B) At a price of $0.40, how many pineapples would the company process?…
The division of a large office services company that makes high-end copiers recently signed a five-year, $25 million contract for IT services from CGI Group, a Canadian information technology company. If you were the manager of the division, how would you justify the long-term nature of your contract with CGI Group?
Courtney Kamauf schedules production of a popular Rustic Coffee Table at Kamauf Enterprises, Inc. The table requires a top, four legs, 1/8 gallon of stain, 1/16 gallon of glue, 2 short braces between the legs and 2 long braces between the legs, and a brass cap that goes on the bottom of each leg. She has 100 gallons of glue in inventory, but none of the other components. All items except the brass caps, stain, and glue are ordered on a lot-for-lot basis. The caps are purchased in quantities of 1,000, stain and glue by the gallon. Lead time is 1 day for each item. Schedule the order releases necessary to produce 640 coffee tables on days 5 and 6, and 128 on days 7 and 8.
Jessie, a pharmacist, is planning on opening her own pharmacy. Jessie Pharmacy is expected to generate yearly revenue of $600,000. Jessie will run the pharmacy herself on full-time basis.Jessie’s alternative employment options are as follows:- Continue to work as a senior medical representative for $50,000 per year.- Accepts a research position in another company for $70,000 per year.Jessie expects to spend $350,000 per year on purchasing drugs and cosmetics for resale to her customers. She will also need to hire three employees: an assistant, an accountant and a custodian, for whom the total salaries to be paid are expected to be $48,000 per year. Jessie owns the building in which her pharmacy is supposed to be; however, she could rent out the pharmacystore space for $42,000 per year.Calculate Jessie’s accounting profit and economic profit. In your opinion, should Jessie proceed with opening her own pharmacy? Justify your answer