Hubert lives in Detroit and runs a business that sells pianos. In an average year, he receives $701,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $420,000; he also pays wages and utility bills totaling $247,000. He owns his showroom; if he chooses to rent it out, he will receive $9,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Hubert does not operate this piano business, he can work as a financial advisor, receive an annual salary of $32,000 with no additional monetary costs, and rent out his showroom at the $9,000 per year rate. No other costs are incurred in running this piano business. Identify each of Hubert's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The wages and utility bills that Hubert pays The rental income Hubert could receive if he chose to rent out his showroom The salary Hubert could earn if he worked as a financial advisor The wholesale cost for the pianos that Hubert pays the manufacturer Complete the following table by determining Hubert's accounting and economic profit of his piano business. Accounting Profit Economic Profit O Profit (Dollars)
Hubert lives in Detroit and runs a business that sells pianos. In an average year, he receives $701,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $420,000; he also pays wages and utility bills totaling $247,000. He owns his showroom; if he chooses to rent it out, he will receive $9,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Hubert does not operate this piano business, he can work as a financial advisor, receive an annual salary of $32,000 with no additional monetary costs, and rent out his showroom at the $9,000 per year rate. No other costs are incurred in running this piano business. Identify each of Hubert's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The wages and utility bills that Hubert pays The rental income Hubert could receive if he chose to rent out his showroom The salary Hubert could earn if he worked as a financial advisor The wholesale cost for the pianos that Hubert pays the manufacturer Complete the following table by determining Hubert's accounting and economic profit of his piano business. Accounting Profit Economic Profit O Profit (Dollars)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter13: best-practice Tactics: Game Theory
Section: Chapter Questions
Problem 14E
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