Question

1. Definition of economic costs Edison lives in New York City and runs a business that sells boats. In an average year he receives 5722.000 in revenue from selling boats of this sales revenue, he must pay the manufacturer a wholesale cost of $422,000; he also part wages and utility bills totaling $268.000. He owns his showroor We chooses to rent it out, he will receive $1,000 in rent per vew. Assume that the value of this showroom does not deprecate over the year. Also, Edison does not operate this bom business, he can work as an accountant and receive an annual salary of $42,000 with no additional monetary costs. No other costs are incurred in running this boat business. Identify each of Edison's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The salary dison could eam if he worked as an accountant The wages and utility bills that Edison pays The wholesale cost for the beats that Edison pays the manufacturer The rental income Edison could receive the chose to rent out his showroom Complete the following table by determining Edison's accounting and come of his boat bus Profit (Dollars) Accounting Profit Economic Profit When the the wo m an accountant would be

Answer 1

The salary Edison could earn....- implicit

The wages and utility...- explicit

The wholesale cost for the boats- explicit

The rental income Edison could...- implicit

Accounting profit = revenue - explicit cost

= 722000 - 422000 - 268000

= 32000

Economic profit = accounting profit - implicit cost

= 32000 - 1000 - 42000= -11000

He SHOULD NOT stay in the boat business.