The income of other entrepreneurs in the shoe shine business = $10,000
Joe's rent payment = $2,000 a year
Joe's revenue = $15,000 a year. He borrowed $1,000 at 20% interest rate to buy equipments.
At the end of one year, he was offered $500 (for business and equipment). Determine annual explicit costs, implicit costs and economic profit.
Explanation of Solution
Joe's annual explicit costs are given below:
Joe's annual implicit costs are given below:
Therefore, Joe's economic profit for the year is given below:
Implicit Costs: The implicit cost is also called imputed cost or indirect cost. Implicit costs are the
Explicit Costs: The explicit cost is a direct cost and known as out of pocket costs. It involves the expenditure done on the use of inputs in the production process by a firm.
Want to see more full solutions like this?
Chapter 14 Solutions
Foundations of Economics, Student Value Edition (8th Edition)
- A common name for fixed cost is overhead. If you divide fixed cost by the quantity of output produced, you get average fixed cost. Supposed fixed cost is 1,000. What does the average fixed cost curve look like? Use your response to explain what spreading the overhead means.arrow_forwardBarney decides to quit his job as a corporate accountant, which pays $14,000 a month, and goes into business for himself as a certified public accountant. He runs his business from his converted garage apartment, which he could rent out for $320 a month if he wasn’t using it as a home office. He must purchase office supplies worth $70 a month, and his monthly electricity bill has increased by $50 now that he is working out of his home office. After six months of working from home, Barney has earned an average of $16,000 per month. Instructions: Enter your answers as a whole number. a. What are Barney’s monthly explicit costs? $ b. What are Barney’s monthly implicit costs? $ c. What are Barney’s monthly economic costs? [i need a,b,c answer i will 5 upvotes]arrow_forwardBlake decides to spend a spring day in the field planting wheat with some help from some workers he hires. Blake earns total revenue of $870. Blake incurs the following costs: $50 for renting a tractor, $150 for fertilizer, and $100 for wages paid to workers. Blake used $5000 that he could have invested in his savings account at 10 percent interest to organize his spring day planting wheat. In addition, Blake gave up $130 he could have earned at his other job in deciding to plant wheat. 1. What is Blake’s accounting profit? 2. What is the total opportunity cost Blake incurred for his spring day in the field planting wheat? 3. What is Blake’s economic profit?arrow_forward
- Barney decides to quit his job as a corporate accountant, which pays $15,000 a month, and goes into business for himself as a certified public accountant. He runs his business from his converted garage apartment, which he could rent out for $315 a month if he wasn’t using it as a home office. He must purchase office supplies worth $60 a month, and his monthly electricity bill has increased by $40 now that he is working out of his home office. After six months of working from home, Barney has earned an average of $17,000 per month. Instructions: Enter your answers as a whole number. a. What are Barney’s average monthly accounting profits? $ b. What are Barney’s average monthly economic profits? $arrow_forwardH6. Your mother owns and runs an arts and craft store, and the business is doing well. She would have otherwise been employed as a high school geography teacher making $80,000 a year or as an interior decorator making $68,000 a year. She owns the building in which her shop is located, which she could have rented out for $24,000 a year. Her annual revenue from the shop is $430,000 and she employs four workers, each of whom earns $30,000 a year. On average, she spends $206,000 per year traveling, purchasing, and shipping unique merchandise for resale at her store. Based on this information, do you think you should encourage her to return to teaching? Explain your advice with the help of calculations on her opportunity costs, accounting profit, and economic profit.arrow_forwardSam decides to quit his job as a corporate accountant, which pays $11,000 a month, and goes into business for himself as a certified public accountant. He runs his business from his converted garage apartment, which he could rent out for $305 a month if he wasn’t using it as a home office. He must purchase office supplies worth $70 a month, and his monthly electricity bill has increased by $50 now that he is working out of his home office. After six months of working from home, Sam has earned an average of $13,000 per month. a. What are Sam’s average monthly accounting profits? $ b. What are Sam's average monthly economic profits? $arrow_forward
- Blake decides to spend a spring day in the field planting wheat with some help from some workers he hires. Blake earns total revenue of $870. Blake incurs the following costs: $50 for renting a tractor, $150 for fertilizer, and $100 for wages paid to workers. Blake used $5000 that he could have invested in his savings account at 10 percent interest to organize his spring day planting wheat. In addition, Blake gave up $130 he could have earned at his other job in deciding to plant wheat. Refer to Scenario 13-1. What is Blake’s economic profit? a. –$130 b. –$60 c. $130 d. $470arrow_forwardBlake decides to spend a spring day in the field planting wheat with some help from some workers he hires. Blake earns total revenue of $870. Blake incurs the following costs: $50 for renting a tractor, $150 for fertilizer, and $100 for wages paid to workers. Blake used $5000 that he could have invested in his savings account at 10 percent interest to organize his spring day planting wheat. In addition, Blake gave up $130 he could have earned at his other job in deciding to plant wheat. 1. Refer to Scenario above. What would Blake’s accountant most likely figure the total cost of his wheat planting would be? a. $25 b. $130 c. $180 d. $300arrow_forwardSam quits his job as an airline pilot and opens his own pilot training school. He was earning $40,000 as a pilot. He withdraws $10,000 from his savings where he was earning 6 percent interest and uses the money in his new business. He uses a building he owns as a hanger and could rent it out for $5,000 per year. He rents a computer for $1,200, buys office supplies for $500, rents an airplane for $6,000, pays $1,300 for fuel and maintenance, and hires one worker for $30,000. Sam's total revenue from pilot training classes this year equaled $90,400. Sam's explicit costs this year equals:arrow_forward
- Rita quit her job as dentist where she earned $150,000/year and converted a house that she owns into a museum for her collection of clocks. Before doing this, Rita had been renting the house out for $20,000/year. Rita hired 2 employees for her museum at a total cost of $50,000/year, and had to pay $10,000/year for utilities. Her museum brought in revenues of $125,000 the first year. Someone even offered her $1,000,000 to purchase her entire collection of clocks. She declined this offer. 1) What is Rita's accounting profit during the year? 2. What is Rita's economic profit? Please explain.arrow_forwardBonnie works one hour a week but looks every day for full time work. Roger quit his job now he spends all his time writing poems and reading them to his ex-girlfriend. Angelina quit her job at a fast food restaurant and is now trying to get a job selling houseboats. Dwain used to repair steam ships but has lost his job when the steam ship repair company he worked for went out of business do to no one needing steam ships anymore and has been unable to find work. Henry works forty hours a week cleaning chimneys but does not like the work and is looking for a job cleaning basements. Edwin is a bear tamer but is looking for work during the winter months because it is hibernation season for bears - Who is seasonably unemployed? -State which individual or individuals would be considered unemployed -State the four types of unemploymentarrow_forwardEconoman has been infected by the free enterprise bug. He sets up a firm on extraterrestrial affairs. The rent of the building is $4,000, the cost of the two secretaries is $50,000, and the cost of electricity and gas comes to $5,000. There’s a great demand for his information, and his total revenue amounts to $100,000. By working in the firm, though, Economan forfeits the $55,000 he could earn by working for the Friendly Space Agency and the $4,000 he could have earned as interest had he saved his funds instead of putting them in this business.a. What is his profit or loss by an accountant’s definitions?Instructions: Enter your response rounded to the nearest whole dollar and use a (-) if the number is negative.Accounting profit: $ b. What is his profit or loss by an economist’s definitions?Instructions: Enter your response rounded to the nearest whole dollar and use a (-) if the number is negative.Economic profit: $ rev: 06_20_2019_QC_CS-171313arrow_forward
- Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStaxMicroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
- Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage LearningEconomics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning