11) Use the accounts listed below to answer the questions about the profit of a retail business.

Total Revenue ................................................................................................... $80,000

Hired Labor ....................................................................................................... $30,000

Inventory purchased for resale .......................................................................... $20,000

Interest that the owner could have earned on an alternative investment .......... $ 2,000

Income the owner could have earned by renting the firm's building ................ $ 4,000

Income the owner could have earned in an alternative business venture ......... $25,000

a) Identify the explicit costs incurred by this business. Why are they explicit costs? (3 points)

b) Identify the implicit costs incurred by the business. Why are they implicit costs? (3 points)

c) How much accounting profit (loss) does the firm make? Show your work. (2 points)

?

d) How much economic profit (loss) does the firm make? Show your work. (2 points)

?

e) What will the firm do in the long run? Why? (2 points)

12) Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston

a) As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (4 points)

b) Why might vacationers have a different elasticity from business travelers? (2 points)

13) Is it always a good idea for firms to lower prices in an attempt to increase total revenue? Explain. (2 points)

14) Suppose the government imposes a tax on gasoline.

a) Would the revenue collected from this tax likely be greater in the first year after it is imposed or in the fifth year? Explain using a graph. (4 points)

b) Would the deadweight loss from this tax be greater in the first year after it is imposed or in the fifth year? Explain using a graph. (4 points)