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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13. Which diagram correctly shows the relationship between marginal cost and average cost? £ S marginal cost average cost output output marginal cost average cost 15 £ D B average cost marginal cost output marginal cost average cost output

1. Definition of economic costs Shen lives in San Diego and operates a small company selling drones. On average, he receives $727,000 per year from selling drones. Out of this revenue from sales, he must pay the manufacturer a wholesale cost of $427,000. He also pays several utility companies, as well as his employees wages totaling $254,000. He owns the building that houses his storefront; if he choose to rent it out, he would receive a yearly amount of $31,000 in rent. Assume there is no depreciation in the value of his property over the year. Further, if Shen does not operate the drone business, he can work as a blogger and earn a yearly salary of $26,000 with no additional monetary costs, and rent out his storefront at the $31,000 per year rate. There are no other costs faced by Shen in running this drone company. Identify each of Shen's costs in the following table as either an implicit cost or an explicit cost of selling drones. Implicit Cost Explicit Cost The wholesale cost for…