Complete the following table by determining Raphael's accounting and economic profit of his piano business. Profit (Dollars) Accounting Profit Economic Profit

Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter4: Extent (how Much) Decisions
Section: Chapter Questions
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Raphael lives in San Diego and runs a business that sells pianos. In an average year, he receives $704,000 from selling pianos. 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
Raphael does not operate this piano 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 piano business.
Identify each of Raphael's costs in the following table as either an implicit cost or an explicit cost of selling pianos.
Implicit Cost
Explicit Cost
The wholesale cost for the pianos that Raphael pays the manufacturer
The rental income Raphael could receive if he chose to rent out his showroom
The wages and utility bills that Raphael pays
The salary Raphael could earn if he worked as an accountant
Complete the following table by determining Raphael's accounting and economic profit of his piano business.
Profit
(Dollars)
Accounting Profit
Economic Profit
Transcribed Image Text:Raphael lives in San Diego and runs a business that sells pianos. In an average year, he receives $704,000 from selling pianos. 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 Raphael does not operate this piano 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 piano business. Identify each of Raphael's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The wholesale cost for the pianos that Raphael pays the manufacturer The rental income Raphael could receive if he chose to rent out his showroom The wages and utility bills that Raphael pays The salary Raphael could earn if he worked as an accountant Complete the following table by determining Raphael's accounting and economic profit of his piano business. Profit (Dollars) Accounting Profit Economic Profit
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