Kenji lives in New York City and runs a business that sells guitars. In an average year, he receives $704,000 from selling guitars. 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 Kenji does not operate this guitar 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 guitar business. Identify each of Kenji's costs in the following table as either an implicit cost or an explicit cost of selling guitars. Implicit Cost Explicit Cost The salary Kenji could earn if he worked as an accountant The wages and utility bills that Kenji pays. The wholesale cost for the guitars that Kenji pays the manufacturer The rental income Kenji could receive if he chose to rent out his showroom Complete the following table by determining Kenji's accounting and economic profit of his guitar business. Accounting Profit Economic Profit Profit (Dollars) Alternatively, the economic profit he would earn as an accountant would be $ 14,000 -9,000 If Kenji's goal is to maximize his economic profit, he should not stay in the guitar business. False True or false: Kenji is earning a normal profit because his profit is negative. O True O
Kenji lives in New York City and runs a business that sells guitars. In an average year, he receives $704,000 from selling guitars. 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 Kenji does not operate this guitar 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 guitar business. Identify each of Kenji's costs in the following table as either an implicit cost or an explicit cost of selling guitars. Implicit Cost Explicit Cost The salary Kenji could earn if he worked as an accountant The wages and utility bills that Kenji pays. The wholesale cost for the guitars that Kenji pays the manufacturer The rental income Kenji could receive if he chose to rent out his showroom Complete the following table by determining Kenji's accounting and economic profit of his guitar business. Accounting Profit Economic Profit Profit (Dollars) Alternatively, the economic profit he would earn as an accountant would be $ 14,000 -9,000 If Kenji's goal is to maximize his economic profit, he should not stay in the guitar business. False True or false: Kenji is earning a normal profit because his profit is negative. O True O
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Kenji lives in New York City and runs a business that sells guitars. In an average year, he receives $704,000 from selling guitars. 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 Kenji
does not operate this guitar 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 guitar business.
Identify each of Kenji's costs in the following table as either an implicit cost or an explicit cost of selling guitars.
Implicit Cost
Explicit Cost
The salary Kenji could earn if he worked as an accountant
The wages and utility bills that Kenji pays
The wholesale cost for the guitars that Kenji pays the manufacturer
The rental income Kenji could receive if he chose to rent out his showroom
Complete the following table by determining Kenji's accounting and economic profit of his guitar business.
Accounting Profit
Economic Profit
Profit
(Dollars)
Alternatively, the economic profit he would earn as an accountant would be $
14,000
-9,000
If Kenji's goal is to maximize his economic profit, he should not stay in the guitar business.
False
True or false: Kenji is earning a normal profit because his profit is negative.
O True
O
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