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ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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![1. Costs and profit
Raphael lives in New York City and runs a business that sells pianos. In an average year, he receives $851,000 from selling pianos. Of this sales
revenue, he must pay the manufacturer a wholesale cost of $476,000; he also pays wages and utility bills totaling $281,000. He owns his showroom;
if he chooses to rent it out, he will receive $71,000 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 and receive an annual salary of $34,000 with no additional monetary
costs. 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 wages and utility bills that Raphael pays
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 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.
Accounting Profit
Economic Profit
Alternatively, the economic profit he would earn as an accountant would be $
Profit
(Dollars)
If Raphael's goal is to maximize his economic profit, he
True or false: Raphael is earning a normal profit.
False
O True
O
stay in the piano business.](https://content.bartleby.com/qna-images/question/8b721f24-277e-423b-989f-e43d6708f27a/1681801f-a443-4fed-8d7b-7e8fe4bec28b/ppjf6q7_thumbnail.jpeg)
Transcribed Image Text:1. Costs and profit
Raphael lives in New York City and runs a business that sells pianos. In an average year, he receives $851,000 from selling pianos. Of this sales
revenue, he must pay the manufacturer a wholesale cost of $476,000; he also pays wages and utility bills totaling $281,000. He owns his showroom;
if he chooses to rent it out, he will receive $71,000 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 and receive an annual salary of $34,000 with no additional monetary
costs. 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 wages and utility bills that Raphael pays
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 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.
Accounting Profit
Economic Profit
Alternatively, the economic profit he would earn as an accountant would be $
Profit
(Dollars)
If Raphael's goal is to maximize his economic profit, he
True or false: Raphael is earning a normal profit.
False
O True
O
stay in the piano business.
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