Principles of Microeconomics California Edition 2nd Edition
2nd Edition
ISBN: 9780393622089
Author: Dirk Mateer, Lee Coppock
Publisher: W. W. Norton
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Question
Chapter 8, Problem 9SP
To determine
Identify the problem that arises when calculating the profit.
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Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job
and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-
of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and
$3,000 per year for equipment.
Please enter your answers as whole numbers with no decimal places (ie. 5000 or $5000 not 5000.00
or "Five thousand dollars"). If you want to enter a negative number use a negative sign "-" and do not
use parenthesis (ie. -2000 or -$2000 not (2000) or (-$2000)).
What is Pat's accounting profit?
What is Pat's economic profit?
Did Pat make the right decision by becoming a personal trainer? (Yes or No)
You have been working as a manager of fashion store. During your work you have saved $50,000. You decided to use the money you saved to start your own business. You decided to use the money you saved to buy the materials. You also decided to utilize a store you own to home your business. The store you used for your business could have been rented for year. You hired a clerk to help you in the store that will cost $20,000 per year. The interest you could have earned on the $50,000 you used to buy the materials was $3,000 per year. Furthermore, you decided to manage your own business and you decided to quit your job that was paying $28,000 per yearYou paid $8,000 for utility. What is your explicit cost? Assume that your total sale for the year was $160,000. What is your implicit cost, what is the accounting profit? What is your economic profit?
You own a business and make $100,000/year. You pay yourself $50,000 and have input costs of
$20,000. You could rent the land for $5,000. Starting salary at a competing firm is $100,000.
What is your accounting profit? Economic profit? Should you stay in business? Would other
firms enter into the market?
What would change if you found a new niche market to sell your product and your sales jumped
to $200,000 and your input costs went up to $30,000? What is your accounting profit?
Economic profit? Should you stay in business? Would other firms enter into the market?
Chapter 8 Solutions
Principles of Microeconomics California Edition 2nd Edition
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Similar questions
- Suppose that you want to open a new business or purchase an existing one. Describe that business. What good or service would you provide? Where would you be located? What would be some explicit costs of starting the business? What would be some implicit costs?arrow_forwardMarty used to be a bartender making $5,000 a year but he quit in order to become a clown that does shows at birthday parties. His clown car and costumes cost $7,000 and he did a lot of shows in the past year, making $13,000 in revenue but paying $2,000 in variable costs for balloons, gas, etc. Marty asked an accountant and an economist to calculate his profit. What did they report?arrow_forwardRafael quit his job paying him $74,000 per year to be a consultant. Last year he started a business for which he spent $7,000 on Google and Facebook advertisements and paid himself $75,000. Based on this information, what were his economic cost of this new business?arrow_forward
- Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant.arrow_forwardYou are running a small business. At the beginning of the month you have $1000. At the end of the first week you have revenues of $2200 and expenses of $1000 for that week. In the second week your revenues are $2000 and your expenses are $700. In the third week your revenues are $2100 and your expenses are $1100. In the fourth week, your revenues are $2200 and your expenses are $3000 (they are higher as you need to pay the rent). You have a checking account earning 1% annually compounded weekly. a) How much money do you have at the end of the four weeks? b) What is the minimum balance of the account over those four weeks? Does it ever drop below $1000?arrow_forwardI want the answerarrow_forward
- Danielle decides to withdraw her savings of $70,000 and invest in starting her own clothing business. She normally earns $3,000 in interest from her savings. If Danielle earned an accounting profit of $60,000 last year, what was her economic profit?arrow_forwardA firm had sales revenue of $942 million last year. It spent $463 million on labor, $88 million on capital and $162 million on materials. The firm's factory sits on land owned by the firm that could be rented out for $2 million per year. What was the firm's economic profit last year in millions of dollars? (Do not include the word "million" or the dollar symbol in your answer, just a number.)arrow_forwardA firm had sales revenue of $1 million last year. It spent $600000 on labor, $150000 on capital and$200000 on materials. What was the firm’s accounting profit?arrow_forward
- Economists define profit a bit differently than in accounting. In addition to explicit costs, we also subtract out implicit costs—what you could have earned from the next best alternative. For example, suppose that you are making $60,000 as an accountant. You decide to quit your job and open up your own accounting business. You end up making a profit of $50,000. How have you done? Accountants would call this a profit of $50,000 while economists would say that you just lost $10,000 (relative to what you were making before). So, economists define profits as being equal to total revenues minus total costs, where costs include the opportunity cost. Suppose that a firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000 on capital, and $200,000 on materials. Calculate the firm’s accounting profit? If the firm’s factory sits on land owned by the firm that it could rent for $30,000 per year, calculate economic profits.arrow_forwarda software production firm, average product has started falling and total output indicated diminishing trend. The production manager Mr. Yahya called you and asked you to see the condition of marginal product. You analyzed the situation and reported that marginal product falling more than average product. Mr. Yahya got surprised. In your opinion which situation the firm is heading to?arrow_forwardChoose a current news item about a company enduring a difficult situation such as layoffs, misconduct, bankruptcy, or a CEO being fired. From this article, please write an internal memo as if you aré VP of communications to employees explaining what happened in the best light possible including consequences. An example might be that because this particular situation occurred, i.e., bankruptcy, 50% of the company's workforce will be terminated immediately. Remember to communicate in a professional, factual manner.arrow_forward
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