Is the firm is a profitable firm.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 7, Problem 1.1P

To determine

Is the firm is a profitable firm.

Expert Solution & Answer

Explanation of Solution

The given information:

The quantity is 20,000 units, the price is $15, and the labor cost is $250,000. The capital worth is $400,000 and the rate of return is 7%.

The economic profit or loss can be calculated as follows:

Profit=(Price×Quantity)−Labor cost−(Capital worth×Rate of return)=(15×20,000)−250,000−(400,000×0.07)=300,000−250,000−28,000=22,000

The profit is 22,000.

Economics Concept Introduction

Economic profit: Economic profit refers to the additional profit after subtracting the opportunity cost from the accounting profit.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Consider a firm that uses capital and labor as inputs and sells 20,000 units of output per year at the going market price of $15. Also, assume that total labor costs to the firm are $250,000 annually. Assume further that the total capital stock of the firm is currently worth $400,000, that the return available to investors with comparable risks is 7 percent annually, and that there is no depreciation. Is this a profitable firm? Explain your answer.

Hua Xing runs a lawn care service. Buying an additional riding lawn mower will cost $3,000 but would allow her firm to earn $1,000 of additional revenue each year for the next four years. She expects marginal efficiency of capital to be at least 10%. Which statement is an accurate description of this investment opportunity? a) Hua Xing should make the investment because turning $3,000 into $4,000 provides a rate of return of 33%. b) Hua Xing should not make the investment because it has a negative net present value. c) Hua Xing should not make the investment because it provides only a 5.16% return on investment. Od) Hua Xing should make the investment because the internal rate of return exceeds 10%.

A clothing manufacturing firm is deciding whether to invest in a new technology that needs an initial investment of $45,000. This will increase cash flows in the first year by $25,000 and $30,000 in the second year. The firm’s current fixed costs are $9,000 and marginal cost is $15. The firm currently charges $18 per unit. What’s the firm’s contribution margin?

Answer 2

Question

Chapter 7, Problem 1.1P

To determine

Is the firm is a profitable firm.

Expert Solution & Answer

Explanation of Solution

The given information:

The quantity is 20,000 units, the price is $15, and the labor cost is $250,000. The capital worth is $400,000 and the rate of return is 7%.

The economic profit or loss can be calculated as follows:

Profit=(Price×Quantity)−Labor cost−(Capital worth×Rate of return)=(15×20,000)−250,000−(400,000×0.07)=300,000−250,000−28,000=22,000

The profit is 22,000.

Economics Concept Introduction

Economic profit: Economic profit refers to the additional profit after subtracting the opportunity cost from the accounting profit.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 7, Problem 1.1P

To determine

Is the firm is a profitable firm.

Expert Solution & Answer

Explanation of Solution

The given information:

The quantity is 20,000 units, the price is $15, and the labor cost is $250,000. The capital worth is $400,000 and the rate of return is 7%.

The economic profit or loss can be calculated as follows:

Profit=(Price×Quantity)−Labor cost−(Capital worth×Rate of return)=(15×20,000)−250,000−(400,000×0.07)=300,000−250,000−28,000=22,000

The profit is 22,000.

Economics Concept Introduction

Economic profit: Economic profit refers to the additional profit after subtracting the opportunity cost from the accounting profit.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 7, Problem 1.1P

To determine

Is the firm is a profitable firm.

Expert Solution & Answer

Explanation of Solution

The given information:

The quantity is 20,000 units, the price is $15, and the labor cost is $250,000. The capital worth is $400,000 and the rate of return is 7%.

The economic profit or loss can be calculated as follows:

Profit=(Price×Quantity)−Labor cost−(Capital worth×Rate of return)=(15×20,000)−250,000−(400,000×0.07)=300,000−250,000−28,000=22,000

The profit is 22,000.

Economics Concept Introduction

Economic profit: Economic profit refers to the additional profit after subtracting the opportunity cost from the accounting profit.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 7, Problem 1.1P

To determine

Is the firm is a profitable firm.

Expert Solution & Answer

Explanation of Solution

The given information:

The quantity is 20,000 units, the price is $15, and the labor cost is $250,000. The capital worth is $400,000 and the rate of return is 7%.

The economic profit or loss can be calculated as follows:

Profit=(Price×Quantity)−Labor cost−(Capital worth×Rate of return)=(15×20,000)−250,000−(400,000×0.07)=300,000−250,000−28,000=22,000

The profit is 22,000.

Economics Concept Introduction

Economic profit: Economic profit refers to the additional profit after subtracting the opportunity cost from the accounting profit.

Answer 6

Chapter 7, Problem 1.1P

To determine

Is the firm is a profitable firm.

Expert Solution & Answer

Explanation of Solution

The given information:

The quantity is 20,000 units, the price is $15, and the labor cost is $250,000. The capital worth is $400,000 and the rate of return is 7%.

The economic profit or loss can be calculated as follows:

Profit=(Price×Quantity)−Labor cost−(Capital worth×Rate of return)=(15×20,000)−250,000−(400,000×0.07)=300,000−250,000−28,000=22,000

The profit is 22,000.

Economics Concept Introduction

Economic profit: Economic profit refers to the additional profit after subtracting the opportunity cost from the accounting profit.

Answer 7

Chapter 7, Problem 1.1P

To determine

Is the firm is a profitable firm.

Answer 8

Expert Solution & Answer

Explanation of Solution

The given information:

The quantity is 20,000 units, the price is $15, and the labor cost is $250,000. The capital worth is $400,000 and the rate of return is 7%.

The economic profit or loss can be calculated as follows:

Profit=(Price×Quantity)−Labor cost−(Capital worth×Rate of return)=(15×20,000)−250,000−(400,000×0.07)=300,000−250,000−28,000=22,000

The profit is 22,000.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Economic profit: Economic profit refers to the additional profit after subtracting the opportunity cost from the accounting profit.

Answer 12

Ch. 7.A - Prob. 1P Ch. 7.A - Prob. 2P Ch. 7.A - Prob. 3P Ch. 7.A - Prob. 4P Ch. 7.A - Prob. 5P Ch. 7 - Prob. 1.1P Ch. 7 - Prob. 1.2P Ch. 7 - Prob. 1.3P Ch. 7 - Prob. 1.4P Ch. 7 - Prob. 1.5P

Is the firm is a profitable firm.

Is the firm is a profitable firm.

Explanation of Solution

Want to see more full solutions like this?

Chapter 7 Solutions