Problem 08-01 (Algo) Refer to the table below. The table shows the monthly econo

Question

Problem 08-01 (Algo) Refer to the table below. The table shows the monthly economic profit of a drügstore. Total (gross) revenues per month t costs Cost of merchandise sold Wages to cashier, st Rent and utilities Taxes $17 700 Total explicit costs $21 countin 38,0 cit costs r-manager, 300 hours $10 per hour $3.00 Total implicit costs $4 conomic profit (revenue minus all costs)$2.000 If the owner of the drugstore hired a manager for $16 an hour to take his place, how much of a change would show up in Instructions: Enter your responses as a whole number Indicate a negative response with a (-) negative sign (a) Accounting profits per month? (b) Economic profits per month?

Explanation / Answer

Manager will charge $ 16 per hour

Total charges for 300 hours = 300×16 = $4800

Thus, the drugstore owner pay a salary of $4800/month to manager.

This salary will move to explicit cost. Since accounting profit is total revenue minus explicit cost.

Hence, accounting profit will reduce by $4800.

b. Economic profit : Here the newly hired manager salary moved to explicit cost. Thus implicit cost reduced by an amount $4800 per month. Since, implicit cost reduced and at the same time explicit cost increased by an equal amount.

No change in Economic Profit.

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