Question

Refer to the table below to answer two questions. The table shows the monthly economic profit of a drugstore. $ 27,000 9.09 points $ 17.000 2.500 800 700 $ 21.000 $ 6,000 ebook Total (gross) revenues per month less explicit costs: Cost of merchandise sold Wages to cashier, stock, and delivery help Rent and utilities Tæves Total explicit costs Accounting profit (revenue minus explicit costs) less implicit costs Wages of owner-manager, 300 hours $10 per hour Return on inventory investment, 10% per year on $120,000 Total implicit costs Economic profit (revenue minus all costs) Print References $ 3.000 1,000 2.000 If the owner of the drugstore hired a manager for $13 an hour to take his place, how much of a change would show up in: < Prev 2 of 11 !!! Next >

Answer 1

With hiring of the manager the explicit cost increase by the salry paid to the manager i.e 300*13=$3900 hence the accounting profit will decrease by -3900

As the implicit cost will come down ( opportunity cost of owner) i.e wages of owner manager-by 3000 net impact in the economic profit will be changes in accounting profit+ change in implicit cost =-3900+3000=-900 hence economic profit willl come down by -900