1) Marge opens an oxygen bar in a building she owns. She used to rent the buildi
ID: 1101761 • Letter: 1
Question
1) Marge opens an oxygen bar in a building she
owns. She used to rent the building to her brother
in law for $10,000 a year. To open the oxygen
bar, Marge quit her job as a physician assistant,
which paid $80,000 a year. As a bar owner,
Marge has to pay $40,000 a year wages for her
bartender, spend $25,000 a year for supplies, and
the utilities bill is $9,500 a year. To cover the
start-up costs, she used up all of her savings
which earned $4,600 in interest. Total annual
revenue at the end of the year is $450,000.
Marge's economic profit is:
a. $450,000
b. $375,500
c. $74,500
d. $280,900
e. $410,000
2) Arthur Bach is worth $780 million dollars. He
goes into an upscale men's store and buys 32
green sweaters, each costing $200. If Arthur has
maximized his utility from this purchase, what is
the marginal utility of the thirty-third green
sweater?
a. cannot tell
b. greater than $200
c. less than $200
d. 0
e. $200
Explanation / Answer
1) Economic Profit =Revenue received - opportunity cost
Economic Profit = 450,000 - (10,000+80,000+40,000+25,000+9,500+4,600) = $280,900
Option D $280,900 is correct
2) Marginal Utility ->The additional satisfaction a consumer gains from consuming one more unit of a good or service.
Option D 0 is the correct answer.
Marginal utility is 0 when the customer has maximised utility.
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