Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 9, Problem 4P
To determine
Identify the cost basis.
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Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $4 million. Bowen owes his local bank $3 million. Last year Bowen sold $5 million worth of cotton. His variable operating costs were $4.5 million; accounting depreciation was $40,000, although the actual decline in value of Bowen's machinery was $60,000 last year. Bowen paid himself a salary of $50,000, which is not considered part of his variable operating costs. Interest on his bank loan was $400,000. If Bowen worked for another farmer or a local manufacturer, his annual income would be about $30,000. Bowen can invest any funds that would be derived if the farm were sold to earn 10 percent annualy. (ignore taxes.)
a. Compute Bowen's accounting profits.
b. Compute Bowen's econnomic profits.
Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $10 million. Bowen owes his local bank $7 million. Last year Bowen sold $9 million worth of cotton. His variable operating costs were $7 million; accounting depreciation was $40,000, although the actual decline in value of Bowen's machinery was $60,000 last year. Bowen paid himself a salary of $50,000, which is not considered part of his variable operating costs. Interest on his bank loan was $400,000. If Bowen worked for another farmer or a local manufacturer, his annual income would be about $30,000. Bowen can invest any funds that would be derived if the farm were sold to earn 10% annually. (Ignore taxes.)
What is Bowen's accounting profit?
$1,210,000.00
$1,550,000
$1,560,000
$1,220,000.00
What is Bowen's economic profit?
$1,210,000.00
$1,560,000
$1,550,000
$1,220,000.00
The Best Buy Company, Inc., is a leading specialty retailer of consumer electronics, personal computers, entertainment software, and appliances. The company operates retail stores and commercial websites, the best known of which is bestbuy.com. Recently, this site offered a home theater unit with a 5-disc DVD player, MP3 playback, and digital AM/FM. At a price of $1100, weekly sales totaled 2500 units. After a $100 online rebate was offered, weekly sales jumped to 5000 units. Using these two price-output combinations, the relevant linear demand and marginal revenue curves can be estimated as
P = 1200 – 0.04Q
(A)Calculate the revenue-maximizing price-output combination and revenue level. If Best Buy's marginal cost per unit is constant at $800, calculate profits at this activity level.
(B) Calculate the profit-maximizing price-output combination. Also calculate revenues and profits at the profit-maximizing activity level.
Chapter 9 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Prob. 6PCh. 9 - Prob. 7PCh. 9 - Prob. 8PCh. 9 - Prob. 9PCh. 9 - Prob. 10P
Ch. 9 - Prob. 11PCh. 9 - Prob. 12PCh. 9 - Prob. 13PCh. 9 - Prob. 14PCh. 9 - Prob. 15PCh. 9 - Prob. 16PCh. 9 - Prob. 17PCh. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 21PCh. 9 - Prob. 22PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Prob. 25PCh. 9 - Prob. 26PCh. 9 - Prob. 27PCh. 9 - Prob. 28PCh. 9 - Prob. 29PCh. 9 - Prob. 30PCh. 9 - Prob. 31PCh. 9 - Prob. 32PCh. 9 - Prob. 33PCh. 9 - Prob. 34PCh. 9 - Prob. 35PCh. 9 - Prob. 36PCh. 9 - Prob. 37PCh. 9 - Prob. 38PCh. 9 - Prob. 39PCh. 9 - Prob. 40PCh. 9 - Prob. 41PCh. 9 - Prob. 42PCh. 9 - Prob. 43PCh. 9 - Prob. 44PCh. 9 - Prob. 45PCh. 9 - Prob. 46PCh. 9 - Prob. 47PCh. 9 - Prob. 48PCh. 9 - Prob. 49PCh. 9 - Prob. 50PCh. 9 - Prob. 51PCh. 9 - Prob. 52PCh. 9 - Prob. 53PCh. 9 - Prob. 1STCh. 9 - Prob. 2STCh. 9 - Prob. 3STCh. 9 - Prob. 4ST
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