1. Definition of economic costs Lorenzo lives in Denver and runs a business that sells guitars. In an average year, he receives $721,000 in revenue from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $421,000; he also pays wages and utility bills totaling $269,000. He owns his showroom; if he chooses to rent it out, he will receive $1,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Lorenzo does not operate this guitar business, he can work as an accountant and receive an annual salary of $41,000 with no additional monetary costs. No other costs are incurred in running this guitar business. Identify each of Lorenzo's costs in the following table as either an implicit cost or an explicit cost of selling guitars. Implicit Cost Explicit Cost The rental income Lorenzo could receive if he chose to rent out his showroom The wholesale cost for the guitars that Lorenzo pays the manufacturer The salary Lorenzo could earn if he worked as an accountant The wages and utility bills that Lorenzo pays

1. Definition of economic costs Lorenzo lives in Denver and runs a business that sells guitars. In an average year, he receives $721,000 in revenue from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $421,000; he also pays wages and utility bills totaling $269,000. He owns his showroom; if he chooses to rent it out, he will receive $1,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Lorenzo does not operate this guitar business, he can work as an accountant and receive an annual salary of $41,000 with no additional monetary costs. No other costs are incurred in running this guitar business. Identify each of Lorenzo's costs in the following table as either an implicit cost or an explicit cost of selling guitars. Implicit Cost Explicit Cost The rental income Lorenzo could receive if he chose to rent out his showroom The wholesale cost for the guitars that Lorenzo pays the manufacturer The salary Lorenzo could earn if he worked as an accountant The wages and utility bills that Lorenzo pays

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. Definition of economic costs Van lives in Philadelphia and operates a small company selling scooters. On average, he receives $849,000 per year from selling scooters. Out of this revenue from sales, he must pay the manufacturer a wholesale cost of $390,000. He also pays several utility companies, as well as his employees wages totaling $359,000. He owns the building that houses his storefront; if he choose to rent it out, he would receive a yearly amount of $72,000 in rent. Assume there is no depreciation in the value of his property over the year. Further, if Van does not operate the scooter business, he can work as a programmer and earn a yearly salary of $25,000 with no additional monetary costs, and rent out his storefront at the $72,000 per year rate. There are no other costs faced by Van in running this scooter company. Identify each of Van's costs in the following table as either an implicit cost or an explicit cost of selling scooters. The wages that Van pays The salary Van…
3. Copier Company A copy company wants to expand production. It currently has 20 workers who share eight copiers. Two months ago, the firm added two copiers, and output increased by 100,000 pages per day. One month ago, they added five workers, and productivity also increased by 50,000 pages per day. Copiers cost about twice as much as workers. Would you recommend they hire another employee or buy another copier? Explain.
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2. Definition of economic costs Jake lives in Detroit and runs a business that sells pianos. In an average year, he receives $726,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $426,000; he also pays wages and utility bills totaling $264,000. He owns his showroom; if he chooses to rent it out, he will receive $13,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Jake does not operate this piano business, he can work as a paralegal and receive an annual salary of $22,000 with no additional monetary costs. No other costs are incurred in running this piano business. Implicit Cost Explicit Cost Identify each of Jake's costs in the following table as either an implicit cost or an explicit cost of selling pianos. The wholesale cost for the pianos that Jake pays the manufacturer The wages and utility bills that Jake pays The rental income Jake could receive if he chose to rent out his…
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