Last year, Jarod left a job that pays $80,000 to run his own bike-repair shop. Jarod’s shop charges $65 for a repair, and last year the shop performed 4,000 repairs. Jarod’s production costs for the year included rent, wages, and equipment. Jarod spent $60,000 on rent and $120,000 on wages for his employees. Jarod keeps whatever profit the shop earns, but does not pay himself an official wage. Jarod used $25,000 of his savings to buy a machine for the business. His savings were earning an annual interest rate of 6 percent. 1. What is Jarod’s annual accounting profit? What is Jarod’s annual economic profit?

Last year, Jarod left a job that pays $80,000 to run his own bike-repair shop. Jarod’s shop charges $65 for a repair, and last year the shop performed 4,000 repairs. Jarod’s production costs for the year included rent, wages, and equipment. Jarod spent $60,000 on rent and $120,000 on wages for his employees. Jarod keeps whatever profit the shop earns, but does not pay himself an official wage. Jarod used $25,000 of his savings to buy a machine for the business. His savings were earning an annual interest rate of 6 percent. 1. What is Jarod’s annual accounting profit? What is Jarod’s annual economic profit?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter4: Extent (how Much) Decisions

Section: Chapter Questions

Problem 4.5IP

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