Question
Bob lives in Dallas and runs a business that sells boats. In an average year, he receives $725,000 in revenue from selling boats. Of this
Bob lives in Dallas and runs a business that sells boats. In an average year, he receives $725,000 in revenue from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $425,000; he also pays wages and utility bills totaling $265,000. He owns his showroom; if he chooses to rent it out, he will receive $1,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Bob does not operate this boat business, he can work as a financial advisor and receive an annual salary of $45,000 with no additional monetary costs. No other costs are incurred in running this boat business.
Identify each of Bob's costs in the following table as either an implicit cost or an explicit cost of selling boats.
The rental income Bob could receive if he chose to rent out his showroom
The salary Bob could earn if he worked as a financial advisor
The wages and utility bills that Bob pays
The wholesale cost for the boats that Bob pays the manufacturer
Complete the following table by determining Bob's accounting and economic profit of his boat business.
Profit(Dollars)
Accounting Profit
Economic Profit
Alternatively, the economic profit he would earn asa financial advisorwould be
If Bob's goal is to maximize hiseconomicprofit, he should or should notstay in the boat business.
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