1.You have a small bakery house. Total labor for it is $10,000 per year, annual

Question

1.You have a small bakery house. Total labor for it is $10,000 per year, annual rent $8,000, and material cost $10,000 per year. You have your own fund of $50,000 that could earn you $5,000 a year if alternatively invested. If you work for other firm, you can make $20,000 a year. Your entrepreneurial talents are worth $5,000 a year. Total annual revenue from bakery house is $80,000.

Calculate accounting profit and economic profit.

2.When you produce a soju from zero to 10, price of the soju is moving from 0,250,243,236,229,222,215,208,201,194 and 185. Calculate TR, MR. In this case TC is also moving from 0,300,459,582,705,847,1006,1185,1411,1746 and 2205. Calculate MC. Then say how many sojus are maximizing profit for you.

What is the work behind this and how do i figure it out I have my final on Saturday

Explanation / Answer

Important Note - Only first question has been answered as multiple questions are asked.

Q1.

Calculate Accounting Profit -

Accounting Profit = Total Revenue - Total Explicit Cost

Explicit cost is the payments made to outsiders. In the given case, explicit costs are amount paid to labor, rent paid, and material cost.

So,

Total explicit cost = Total labor cost + Annual rent + Material cost

                               = $10,000 + $8,000 + $10,000

                               = $28,000

Accounting Profit = Total Revenue - Total Explicit Cost

                               = $80,000 - $28,000

                               = $52,000

Thus, accounting profit of firm is $52,000.

Calculate Economic Profit -

Economic Profit = Total Revenue - (Total explicit cost + Total Implicit cost)

Implicit cost is the value of inputs supplied by the owner. This include interest on own capital, salary for services provided as entrepreneur etc.

In the given case, implicit costs are return that could be earned on own funds, salary that can be earned in alternative job, and value of enrepreneurial talents.

So,

Implicit cost = Value of return that could be earned on own funds + Salary that can be earned in alternative job + Value of enrepreneurial talents

Implicit cost = $5,000 + $20,000 + $5,000

                      = $30,000

Economic Profit = Total Revenue - (Total explicit cost + Total Implicit cost)

                             = $80,000 - ($28,000 + $30,000)

                             = $80,000 - $58,000

                             = $22,000

Thus, economic profit of firm is $22,000.

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