1. Costs and profit Van lives in Chicago 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 Van 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 Van's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost The rental income Van could receive if he chose to rent out his showroom The wholesale cost for the boats that Van pays the manufacturer The salary Van could earn if he worked as an accountant The wages and utility bills that Van pays Accounting Profit Economic Profit Alternatively, the economic profit he would earn as an accountant would be If Van's goal is to maximize his economic profit, he True or false: Van is earning a normal profit because his profit is negative. O True O Complete the following table by determining Van's accounting and economic profit of his boat business. Profit (Dollars) O False O O stay in the boat business. Explicit Cost O O O
1. Costs and profit Van lives in Chicago 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 Van 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 Van's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost The rental income Van could receive if he chose to rent out his showroom The wholesale cost for the boats that Van pays the manufacturer The salary Van could earn if he worked as an accountant The wages and utility bills that Van pays Accounting Profit Economic Profit Alternatively, the economic profit he would earn as an accountant would be If Van's goal is to maximize his economic profit, he True or false: Van is earning a normal profit because his profit is negative. O True O Complete the following table by determining Van's accounting and economic profit of his boat business. Profit (Dollars) O False O O stay in the boat business. Explicit Cost O O O
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. Costs and profit
Van lives in Chicago 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 Van 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 Van's costs in the following table as either an implicit cost or an explicit cost of selling boats.
Implicit Cost
The rental income Van could receive if he chose to rent out his showroom
The wholesale cost for the boats that Van pays the manufacturer
The salary Van could earn if he worked as an accountant
The wages and utility bills that Van pays
Accounting Profit
Economic Profit
Alternatively, the economic profit he would earn as an accountant would be
If Van's goal is to maximize his economic profit, he
True or false: Van is earning a normal profit because his profit is negative.
O True
O
Complete the following table by determining Van's accounting and economic profit of his boat business.
Profit
(Dollars)
O False
O
O
stay in the boat business.
Explicit Cost
O
O
O
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