Microeconomics A Contemporary Intro
10th Edition
ISBN: 9781285635101
Author: MCEACHERN
Publisher: Cengage
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Question Google is considering an advertising campaign that is expected to increase the sales of its Pixel phone by 20%. Suppose that currently Google sells 1,000,000 units at $500 per unit and the variable cost per unit is $300. If the cost of the advertising campaign is $50 million, will Google find it acceptable?
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In early 2008, you purchased and remodeled a 120-room hotel to handle the increased number of conventions coming to town. By mid-2008, it became apparent that the recession would kill the demand for conventions. Now, you forecast that you will be able to sell only 10,000 room-nights, which cost $70 per room per night to service. You spent $25.00 million on the hotel in 2008, and your cost of capital is 10%. The current going price to sell the hotel is $20 million.If the estimated demand is 10,000 room-nights, the break-even price is $per room, per night. (Hint: Remember that the cost of capital is the opportunity cost, or true cost, of making an investment.)
Business
Selling Price
Total Sold
Cost of Goods Sold
Sales
Profit
First Aid Kits
28.95
25
400
723.75
323.75
Leg Casts
50
10
300
500
200
Rubbing Liniment
12
5
5
60
55
Resuscitators
70
2
130
140
10
Sun Burn Ointment
25
25
1000
625
-375
Question #1
Economists are always calculating the costs and the benefits of alternatives. Economic profit, as distinct from the accounting profit you calculated in question 1, is the additional profit that is earned by choosing the best, rather than the second best, profit opportunity. Profit maximizers should always calculate economic as well as accounting profit. What is the economic profit you would receive if you decided to purchase the business's best profit maker?
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