SHORT ANSWERL4S POINTS TOTAL): Completely answer the questions asked. 1. (5 poin
ID: 1108877 • Letter: S
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SHORT ANSWERL4S POINTS TOTAL): Completely answer the questions asked. 1. (5 points) The following table shows output per hour for Fred and Barney who mow lawns and trim hedges Output per Hour Fred Barnev Lawns Cut Hedges Trimmed a. What is Fred's opportunity cost of mowing a lawn? b. What is Barney's opportunity cost of mowing lawns? c. Who has the comparative advantage in mowing lawns? How do you know this? (5 points) Gomez runs a small pottery firm. He hires one helper at $10,000 per year, pays annual rent of S6000 for his shop, and spends $18,000 per year on materials. He has S30,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could carn him S3000 per year if alternatively invested He has been offered $20,000 per ycar to work as a potter for a competitor. He estimates his entreprencurial talents are worth S3000 per year. Total annual revenue from pottery sales is S800,000. Calculate the accounting profit and the economic profit for Gomez's pottery firm. 2. a. Accounting profit b. EconomicExplanation / Answer
1. a) Fred's opportunity cost of mowing a lawn = 4 / 4 = 1 Hedges Trimmed.
b) Barney's opportunity cost of mowing a lawn = 12 / 6 = 2 Hedges Trimmed.
c) Fred has comparative advantage in mowing lawns. Because the opportunity cost of mowing lawns is less by Fred.
2. a) Accounting profit = Total revenue - Explicit costs
= 800,000 - 10,000 - 6,000 - 18,000
= $766,000
Economic profit = Accounting profit - implicit cost
= 766,000 - 3000 - 20,000 - 3000
= $740,000
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