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Question 1 (4 Marks) Sally quit herjob as an auto mechanic earning $50 000 per year to start her own business. To save money, she
Question 1 (4 Marks) Sally quit herjob as an auto mechanic earning $50 000 per year to start her own business. To save money, she operates her business out of a small building she owns which, until she started her own business, she had rented out for $10 000 per year. She also invested her $20 000 savings (which earned a market interest rate of 5% per year) in her business. You are given the following information about the rst year of her operations. Total revenue $120 000 Cost of labour 40 000 Cost of materials 15 000 Equipment rental 5000 a. Calculate her economic costs. b. Calculate her accounting costs. Question 2 (6 Marks) Arnie sells Pineapples in a perfectly competitive market. Assume that the market price of a pineapple is $5.00. The table below summarises Arnie's output per day (Q) and total cost (TC). Quantity Total Revenue Total Cost Average Total Marginal Cost ($) ( $) Cost ($) ($) 0 $3.00 1 2 3 9.00 4 14.00 5 20.00 6 28.00 7 40.00 a. Complete the table (2 marks) b. What is Arnie's profit maximizing output? How much will be his profit? Briey explain how you arrived at your answers. (3 marks) o. Is Arnie's business operating in the short run or long run? Explain why? (1 mark)
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