MICROECONOMICS-CONNECT PLUS ACCESS
21st Edition
ISBN: 9781260430776
Author: McConnell
Publisher: MCG
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Chapter 18, Problem 10DQ
To determine
The difference between economic profit and accounting profit and their sources.
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Question 3.(LO3 Apply)
Simon Ltd is run by Simon Leather who makes leather belts for designers. He uses the finest Argentinean
leather and needs highly trained machinists to make the belts up to the quality designers expect. His beits usually sell for £50 per item and use 0.2m² of leather and 30 minutes of labor. Simon Ltd has 5 staff. They work a standard 8-hour day, 5 days a week, 48 weeks of the year. They earn £15 per hour.
Leather costs £20 per meter. Simon also has some variable overheads of £6 per unit. Fixed overheads are £28,800.
a) Calculate the number of belts Simon will have to sell to break even.
Simon decides to branch out and start to also sell handbags to the same market. The handbags sell for €250 each and use 1.5m² of leather with 1 hour of labor being required. Variable overheads are £20 per handbag.
There has been a bad case of foot and mouth in Argentina. Simon can only use the leather he has currently being shipped to him for the next…
. Wood, the receiver of Stanton Oil Company, suedStanton’s shareholders to recover dividends paid to themfor three years, claiming that at the time these dividendswere declared, Stanton was in fact insolvent. Wood didnot allege that the present creditors were also creditorswhen the dividends were paid. Were the dividendswrongfully paid? Explain
Label each of the following behaviors with the correct bias or heuristic. LO8.3 a. Your uncle says that he knew all along that the stock market was going to crash in 2008. b. When Fred does well at work, he credits his intelligence. When anything goes wrong, he blames his secretary. c. Ellen thinks that being struck dead by lightning is much more likely than dying from an accidental fall at home. d. The sales of a TV that is priced at $999 rise after another very similar TV priced at $1,300 is placed next to it at the store. e. The sales of a brand of toothpaste rise after new TV commercials announce that the brand “is preferred by 4 out of 5 dentists.”
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- A software company in Silicon Valley uses programmers (labor) and computers (capital) to produce apps for mobile devices. The firm estimates that when it comes to labor, MPL = 5 apps per month while PL = $1,000 per month. And when it comes to capital, MPC = 8 apps per month while PC = $1,000 per month. If the company wants to maximize its profits, it should: LO16.5 a. Increase labor while decreasing capital. b. Decrease labor while increasing capital. c. Keep the current amounts of capital and labor just as they are. d. None of the above.arrow_forwardSuppose we have another firm known as the Sanda Corporation which makes a product known as "Delgados". Suppose that its FC=$2,000 and its TC=$5,000 and its AVC=$48. What is the ATC? O $20.50 O $70 O $80 O $100 O Not enough informationarrow_forwardPROBLEMS 1. Workers are compensated by firms with “benefits” in addition to wages and salaries. The most prominent benefit offered by many firms is health insurance. Suppose that in 2000, workers at one steel plant were paid $20 per hour and in addition received health benefits at the rate of $4 per hour. Also suppose that by 2010 workers at that plant were paid $21 per hour but received $9 in health insurance benefits. LO17.1 By what percentage did total compensation (wages plus benefits) change at this plant from 2000 to 2010? What was the approximate average annual percentage change in total compensation? By what percentage did wages change at this plant from 2000 to 2010? What was the approximate average annual percentage change in wages? If workers value a dollar of health benefits as much as they value a dollar of wages, by what total percentage will they feel that their incomes have risen over this time period? What if they only consider wages when calculating their incomes?…arrow_forward
- Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1,000 in revenue. Each worker’s equipment costs the worker’s employer $150 per month to rent and each worker toils 40 hours per week for four weeks each month. LO17.6 Now consider the employer’s total costs. These include the equipment costs as well as a normal profit of $50 per acre. If the firm pays workers the minimum wage of $6.20 per hour, what will the firm’s economic profit or loss be per acre? At what value would the minimum wage have to be set so that the firm would make zero economic profit from employing an additional low-skilled worker to clear woodland?arrow_forward4. Suppose that you are an airline executive and you come to work one morning to find a memorandum on our desk indicating that the Boeing 747 that your company leased to fly between New York and London is bringing in revenues of $200,000 per day. You also know that the direct operating expenses (wages for the flight crew, aviation fuel, and that awful airline food) are $180,000 per day. Lastly, suppose you calculate that the interest cost of the loan to pay for the airplane was $40,000 per day. Should you continue to fly the plane? Why might your answer depend on the decision time frame, and what additional information would you need?arrow_forwardSubscribing to the theory that life is indeed a beach, the residents of La Playa spend all of their money on three things: Every year, they collectively buy 250 bathing suits, 600 tubes of sunscreen, and 400 beach towels. Using the data in Table 8P - 1 , calculate the following . [LO 8.1] a. The total cost of this basket each year 2013 through . b. How much the price of this basket has changed from year to year in percentage terms. threearrow_forward
- Complete the accompanying table and answer the accompanying questions. (L01, LO6, LO7) a. At what level of the control variable are net benefits maximized? b. What is the relation between marginal benefit and marginal cost at this levelof the variable? Control Variable Q Total Benefits B(Q) Total Cost C(Q) Net Benefits N(Q) Marginal Benefit MB(Q) Marginal Cost MC(Q) Marginal Cost MC(Q) 100 1200 950 60 101 1400 70 102 1590 80 103 1770 90 104 1940 100 105 2100 110 106 2250 120 107 2390 130 108 2520 140 109 2640 150 110 2750 160arrow_forward. Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople’s productivity. Currently, each salesperson sells an average of one car per day while being paid $20 per hour for an eight-hour day. LO17.8 What is the current labor cost per car sold? Suppose that when the dealer raises the price of labor to $30 per hour the average number of cars sold by a salesperson increases to two per day. What is now the labor cost per car sold? By how much is it higher or lower than it was before? Has the efficiency of labor expenditures by the firm (cars sold per dollar of wages paid to salespeople) increased or decreased? Suppose that if the wage is raised a second time to $40 per hour the number of cars sold rises to an average of 2.5 per day. What is now the labor cost per car sold? If the firm’s goal is to maximize the efficiency of its labor expenditures, which of the three hourly salary rates should it use: $20 per hour, $30 per hour, or $40 per hour?…arrow_forwardTeletronics reported record profits of $100,000 last year and is on track to exceed those profits this year. Teletronics competes in a very competitive market where many of the firms are merging in an attempt to gain competitive advantages. Currently, the company’s top manager is compensated with a fixed salary that does not include any performance bonuses. Explain why this manager might nonetheless have a strong incentive to maximize the firm’s profits. (LO4, LO5)arrow_forward
- Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm’s capacity. If he adds one more worker, the firm’s total monthly revenue will increase from $50,000 to $58,000. If he adds one more tractor, monthly revenue will increase from $50,000 to $62,000. Each additional worker costs $4,000 per month, while an additional tractor would also cost $4,000 per month. LO16.5 a. What is the marginal product of labor? The marginal product of capital? b. What is the ratio of the marginal product of labor to the price of labor (MPL/PL)? What is the ratio of the marginal product of capital to the price of capital (MPK/PK)? c. Is the firm using the least-costly combination of inputs? d. Does adding an additional worker or adding an additional tractor yield a larger increase in total revenue for each dollar spent?arrow_forwardAbdul’s utility function is given by U A 5 M A 2 y M B , where M A is Abdul’s wealth level and M B is Benjamin’s wealth level. Benjamin’s utility function is given by (LO1) U B 5 M B 2 y M A . Suppose M A 5 M B 5 10 initially, and suppose there is a joint project that Ab dul and Benjamin can undertake that will generate an additional 10 units of wealth to divide between them. The project is neither pleasant nor unpleasant. What is the minimum payment Abdul must be given to secure his agreement to perform the project? What is the minimum payment Benjamin must be given? Will they perform the project? (LO1)arrow_forward1. Why does price minus extraction cost rise at the rate of interest in a competitive market for an exhaustible resource? In a competitive market for an exhaustible resource, the user cost of producing an exhaustible resource rises at the rate of interest because.. a. Exhaustible resources should be extracted if price minus marginal cost rises faster than the rate of interest. b. Exhaustible resources should be unextracted if price minus marginal cost rises faster than the rate of interest. c. Price minus marginal cost is less than marginal revenue minus marginal cost d. When price minus marginal cost rises at the rate of interest, marginal revenue minus marginal cost rises faster than the rate of interest.arrow_forward
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