Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Costs and profit Tim lives in Dallas and runs a business that sells guitars. In an average year, he recelves $ 7 0 4 ,
Costs and profit
Tim lives in Dallas and runs a business that sells guitars. In an average year, he recelves $ from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $; he also pays wages and utility bills totaling $ He owns his showroom; if he chooses to rent it out, he will receive $ in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Tim does not operate this guitar business, he can work as an accountant and receive an annual salary of $ with no additional monetary costs. No other costs are incurred in running this guitar business.
Identify each of Tim's costs in the following table as either an implicit cost or an explicit cost of selling guitars.
Implicit Cost
Explicit Cost
The wages and utility bills that Tim pays
The salary Tim could earn if he worked as an accountant
The wholesale cost for the guitars that TIm pays the manufacturer
The rental income TIm could receive if he chose to rent out his showroom
Complete the following table by determining Tim's accounting and economic profit of his guitar business.
Profit
Dollars
Accounting Profit
Economic Profit
Alternatively, the economic profit he would earn as an accountant would be
If Tim's goal is to maximize his economic proflt, he stay in the guitar business.
True or false: Tim is earning a normal profit because his profit is negative.
False
True
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started