Question

CENGAGE | MINDTAP omework: Production and Costs (Ch 08) ck to Assignment attempts: Keep the Highest: /5 3. Definition of economic costs Raphael lives in San Francisco and runs a business that sells boats. In an average year, he receives $704,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $404,000; he also pays wages and utility bills totaling $286,000. He owns his showroom; if he chooses to rent it out, he will receive $3,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Raphael does not operate this boat business, he can work as an accountant and receive an annual salary of $20,000 with no additional monetary costs. No other costs are incurred in running this boat business. Identify each of Raphael's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The rental income Raphael could receive if he chose to rent out his showroom The salary Raphael could earn if he worked as an accountant The wholesale cost for the boats that Raphael pays the manufacturer The wages and utility bills that Raphael pays Complete the following table by determining Raphael's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit Alternatively, the economic profit he would earn as an accountant would be s If Raphael's goal is to maximize his economic profit, he stay in the boat business. True or false: Raphael is earning a normal profit because his profit is negative. False True

Answer 1

Selution - The rental income Raphael could receine if he chose to rent out his showroom is Implicit cast The salary Raphael could earn if he worked as an accountant is an Implicit cost. The wholesall cast for the boats that Raphael kays the manufactures is Explicit Celt. • The wage and utility bills that Raphael pays is explicit Cest. Awounting Profei = Sales Revenue - Explicit Ceet 704000 (404000 + 286000) 1000 Feconomic Profit : Sales Revenue - Explicit cert - Implicit Cest = 3 704000 - 404000 – 286000 - 3000 - 20000 - $9000 (Economic hors) profit = Annual when he wasts as an accountant , his economic Salary + Rent received from the showroom = 20000 + 3000 = $23000 A If Raphael wants to maximise his economic profit , he will net stay in Boat Business of economic frofit ad quountant i more: profit means earning zero profit False karming a normal not negative profit