Question

ECON 2010 SPRING SEMESTER 2018 HOMEWORK NO. 2 DUE DATE: APRIL 3, 2018 BY END OF CLASS. NO EXCEPTIONS POINTS: 10 EXHIBIT 3.1 Princess Frédérikà Anabélle Pi QC and her husband Prince Joséphus Gidéon Pig, members of the cabinet of Her Royal Majesty Queen Söphtä ll of the Kingdom of Pig, resigned their cabinet positions in 2012 to jointly run a new business that they had started with money inhenited from their great-grand aunt . Before they quit their royal jobs, the Pincess was paid P$2,750,000 (Kingdom of Pig dollars) per year and the husband was paid P$1,450,000 per year. Both of them now own and operate several enterprises collectively referred to as Royal Enterprises, LLC (RE, LLC). Some of the businesses are housed in a collection of commercial buildings that were inherited from Princess Frédénikkä's great-grandmother. Part of their hertance PS5960000, vas used to purchase equipment for three of their restaurants, wo sporting goods stores, and a sports bar where patrons can dine on specially cured premium cricket chips and watch the Pig National Warriors compete against the Cow National Eagles for the Millennium World Football Cup. Before they inherited the building, it had been rented to Goat Entertainment, Inc. for P$200,000 per month. Last year RE, LLC had total revenues of PS300,000,000; supplies and employees received P$125,500,000. An additional P$10,200,000 was also spent on advertising. Total depreciation expenditures for 2013 were P$5,500,000. Assume a market interest rate of 6.25 percent drink Coca Cola, 1. Refer to Exhibit 3.1. What were the total explicit costs for RE, LLC in 2013? a. $135,000,000.iem) b.$135,500,000. c $165,500,000. mplicit costs d. $135,700,000. Foregone salary of ownens e$155,700,000. Faregone interest on owner's investmenr Forcrone restal incose& Depreclation 2. Refer to Exhibit 3.1. RE, LLC. had total implicit costs in 2013 equal to: a. $12,000,000. b. $12,450,000 C. $12,500,000. d. $12,572,500. e.$12,472,500 3. Refer to Exhibit 3.1. RE, LLC had total costs in 2013 equal to: a. $158,172,500. b. $148,172,500. c. $168,500,000. d. $122,450,000. e $164,600,000.

Answer 1

Use the fact that Implicit cost is

• the salary foregone of princess and her husband (2,750,000 + 1,450,000)
• Rental income lost (12*200,000 = 2,400,000)
• Depreciation (5,500,000)

Explicit cost is

• Salary and advertisement (10,200,000 + 125,500,000)

Accounting profit = Revenue - explicit cost - depreciation

Economic profit = Revenue - total cost

1) Option D

2) Option E

3) Option B

4) Option C

5) Option A

Costs	Explicit cost	Implicit cost	Total cost	Revenue	Accounting profit	Economic profit
		2750000		300000000	158800000	151827500
	125500000	1450000
	10200000	2400000
		5500000
		372500
total	135700000	12472500	148172500