Eric lives in Denver and operates a small company selling bikes. On average, he receives $849,000 per year from selling bikes. 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 Eric does not operate the bike 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 Eric in running this bike company. Identify each of Eric's costs in the following table as either an implicit cost or an explicit cost of selling bikes. Implicit Cost Explicit Cost The rental income Eric could receive if he chose to rent out his showroom The wages that Eric pays The salary Eric could earn if he worked as a programmer The wholesale cost for the bikes that Eric pays the manufacturer Complete the following table by determining Eric's accounting and economic profit of his bike business. Accounting Profit Economic Profit O Profit (Dollars)
Eric lives in Denver and operates a small company selling bikes. On average, he receives $849,000 per year from selling bikes. 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 Eric does not operate the bike 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 Eric in running this bike company. Identify each of Eric's costs in the following table as either an implicit cost or an explicit cost of selling bikes. Implicit Cost Explicit Cost The rental income Eric could receive if he chose to rent out his showroom The wages that Eric pays The salary Eric could earn if he worked as a programmer The wholesale cost for the bikes that Eric pays the manufacturer Complete the following table by determining Eric's accounting and economic profit of his bike business. Accounting Profit Economic Profit O Profit (Dollars)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. Definition of economic costs
Eric lives in Denver and operates a small company selling bikes. On average, he receives $849,000 per year from selling bikes. 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 Eric does not operate the bike 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 Eric in running this bike company.
Identify each of Eric's costs in the following table as either an implicit cost or an explicit cost of selling bikes.
Implicit Cost Explicit Cost
The rental income Eric could receive if he chose to rent out his showroom
The wages that Eric pays
The salary Eric could earn if he worked as a programmer
The wholesale cost for the bikes that Eric pays the manufacturer
Complete the following table by determining Eric's accounting and economic profit of his bike business.
Profit
(Dollars)
Accounting Profit
Economic Profit
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