1. Definition of economic costs Larry lives in New York City 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 Larry does not operate this boat business, he can work as an accountant, receive an annual salary of $20,000 with no additional monetary costs, and rent out his showroom at the $3,000 per year rate. No other costs are incurred in running this boat business. Identify each of Larry'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 Larry could receive if he chose to rent out his showroom The wholesale cost for the boats that Larry pays the manufacturer The wages and utility bills that Larry pays The salary Larry could earn if he worked as an accountant Complete the following table by determining Larry's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit O oo O
1. Definition of economic costs Larry lives in New York City 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 Larry does not operate this boat business, he can work as an accountant, receive an annual salary of $20,000 with no additional monetary costs, and rent out his showroom at the $3,000 per year rate. No other costs are incurred in running this boat business. Identify each of Larry'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 Larry could receive if he chose to rent out his showroom The wholesale cost for the boats that Larry pays the manufacturer The wages and utility bills that Larry pays The salary Larry could earn if he worked as an accountant Complete the following table by determining Larry's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit O oo O
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. Definition of economic costs
Larry lives in New York City 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 Larry
does not operate this boat business, he can work as an accountant, receive an annual salary of $20,000 with no additional monetary costs, and rent
out his showroom at the $3,000 per year rate. No other costs are incurred in running this boat business.
Identify each of Larry'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 Larry could receive if he chose to rent out his showroom
The wholesale cost for the boats that Larry pays the manufacturer
The wages and utility bills that Larry pays
The salary Larry could earn if he worked as an accountant
Complete the following table by determining Larry's accounting and economic profit of his boat business.
Profit
(Dollars)
Accounting Profit
Economic Profit
O O
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