1. Definition of economic costs Bob lives in Miami and runs a business that sells guitars. In an average year, he receives $793,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $430,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $15,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Bob does not operate this guitar business, he can work as a financial advisor, receive an annual salary of $50,000 with no additional monetary costs, and rent out his showroom at the $15,000 per year rate. No other costs are incurred in running this guitar business. Identify each of Bob's costs in the following table as either an implicit cost or an explicit cost of selling guitars. Implicit Cost Explicit Cost The wholesale cost for the guitars that Bob pays the manufacturer The wages and utility bills that Bob pays The salary Bob could earn if he worked as a financial advisor The rental income Bob could receive if he chose to rent out his showroom Complete the following table by determining Bob's accounting and economic profit of his guitar business. Profit (Dollars) Accounting Profit Economic Profit
1. Definition of economic costs Bob lives in Miami and runs a business that sells guitars. In an average year, he receives $793,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $430,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $15,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Bob does not operate this guitar business, he can work as a financial advisor, receive an annual salary of $50,000 with no additional monetary costs, and rent out his showroom at the $15,000 per year rate. No other costs are incurred in running this guitar business. Identify each of Bob's costs in the following table as either an implicit cost or an explicit cost of selling guitars. Implicit Cost Explicit Cost The wholesale cost for the guitars that Bob pays the manufacturer The wages and utility bills that Bob pays The salary Bob could earn if he worked as a financial advisor The rental income Bob could receive if he chose to rent out his showroom Complete the following table by determining Bob's accounting and economic profit of his guitar business. Profit (Dollars) Accounting Profit Economic Profit
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter7: Production, Costs, And Industry Structure
Section: Chapter Questions
Problem 38CTQ: Do you think that the taxicab industry in large cities would be subject to significant economies of...
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