Question

1. Costs and profit Antonio lives in New York City and runs a business that sells boats. In an average year, he receives $842,000 from selling boats. of thi s sales he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $38,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Antonio does not operate this boat business, he can work as an accountant and receive an annual salary of $48,000 with no additional monetary costs. No other costs are incurred in running this boat business.

Answer 1

Revenue = $842,000

Wholesale cost = $452,000

Utility bills and wages = $301,000

Implicit cost of Antonio working as accountant = ($842,000) - ($452,000 + $301,000) = $89,000

Rent = $38,000

Accountant salary = $48,000

Revenues of Antonio working as an accountant = $38,000 + $48,000 = $$86,000

Economic Profit of working as accountant= $86,000 - $89,000 = -$3,000

So, economic profit as an accountant = -$3,000

So, if Antonio's goal is to maximize economic profit, he should stay in the boat business

In the boat business, Antonio is earning normal profit (profit > 0)