ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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I need help to see if I'm doing this correctly, also what his economic profit is as a financial advisor and if he should stay in the piano business or not. Thank you.
Manuel lives in Philadelphia and runs a business that sells pianos. In an average year, he receives $723,000 from selling pianos. Of this sales revenue,
he must pay the manufacturer a wholesale cost of $423,000; he also pays wages and utility bills totaling $267,000. He owns his showroom; if he
chooses to rent it out, he will receive $2,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if
Manuel does not operate this piano business, he can work as a financial advisor and receive an annual salary of $20,000 with no additional monetary
costs. No other costs are incurred in running this piano business.
Identify each of Manuel's costs in the following table as either an implicit cost or an explicit cost of selling pianos.
Implicit Cost Explicit Cost
The wholesale cost for the pianos that Manuel pays the manufacturer
The rental income Manuel could receive if he chose to rent out his showroom
The salary Manuel could earn if he worked as a financial advisor
The wages and utility bills that Manuel pays
Complete the following table by determining Manuel's accounting and economic profit of his piano business.
Accounting Profit
Economic Profit
Profit
(Dollars)
Alternatively, the economic profit he would earn as a financial advisor would be $
33,000
11,000
If Manuel's goal is to maximize his economic profit, he
True
O False
True or false: Manuel is earning a normal profit because his profit is positive.
stay in the piano business.
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Transcribed Image Text:Manuel lives in Philadelphia and runs a business that sells pianos. In an average year, he receives $723,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $423,000; he also pays wages and utility bills totaling $267,000. He owns his showroom; if he chooses to rent it out, he will receive $2,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Manuel does not operate this piano business, he can work as a financial advisor and receive an annual salary of $20,000 with no additional monetary costs. No other costs are incurred in running this piano business. Identify each of Manuel's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The wholesale cost for the pianos that Manuel pays the manufacturer The rental income Manuel could receive if he chose to rent out his showroom The salary Manuel could earn if he worked as a financial advisor The wages and utility bills that Manuel pays Complete the following table by determining Manuel's accounting and economic profit of his piano business. Accounting Profit Economic Profit Profit (Dollars) Alternatively, the economic profit he would earn as a financial advisor would be $ 33,000 11,000 If Manuel's goal is to maximize his economic profit, he True O False True or false: Manuel is earning a normal profit because his profit is positive. stay in the piano business.
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