You quit your previous job that had been paying $40,000 peryear. You have $40,00

Question

You quit your previous job that had been paying $40,000 peryear. You have $40,000 in your savings account that you withdraw tostart this company. the savings account had been paying you 5%interest. Because the $40,000 from your savings is not enough tostart the company, you also borrow $2,300,000 from the bank. (Thebank manager is willing to loan you such a large amount because heknows of your reputation and experience in the home-buildingindustry). You use the money to hire workers and buy the tools,machinery, and raw materials with which you will buildhouses. The cost per worker is $20,000 per year. In your first year,you plan to hire 48 workers to do the construction work, whichmeans that the annual labor cost of your company will be $960,000(48 x $20,000). With 48 workers, your company can build sevenhouses. You must also buy raw materials--land, wood, nails,plasterboard, and so forth. Each house requires $20,000 worth ofraw materials. The cost of raw materials for seven houses is$140,000 (7 x $20,000). Finally, the bank charges 6% interest on your loan. theinterest cost is $138,000 (6% of $2,300,000). Based on this scenario, what are the total explicit costs foryour construction company A. $1,280,000 B. $960,000 C. $2,300,000 D. $42,000 E. $1,238,000 Based on this scenario, what are the total implicit costs foryour construction company A. $80,000 B. $40,000 C. $1,238,000 D. $42,000 E. $1,280,000 You sell seven homes during the year at a price of $200,000per home. Therefore, your company receives total revenue of$1,400,000 (7 x $200,000. What are the economic profits for yourconstruction company? A. $120,000 B. $1,358,000 C. $0 D. $1,400,000 E. $162,000 When you sell seven homes during the year, what are the totalvariable costs for your construction company? A. $140,000 B. $1,100,000 C. $960,000 D. $40,000 E. $2,300,000 What are the total fixed costs for your constructioncompany? A. $180,000 B. $1,280,000 C. $960,000 D. $140,000 E. $42,000 If you build on one home, what is your average fixedcost? If you build nine homes, what is your average fixedcost? You quit your previous job that had been paying $40,000 peryear. You have $40,000 in your savings account that you withdraw tostart this company. the savings account had been paying you 5%interest. Because the $40,000 from your savings is not enough tostart the company, you also borrow $2,300,000 from the bank. (Thebank manager is willing to loan you such a large amount because heknows of your reputation and experience in the home-buildingindustry). You use the money to hire workers and buy the tools,machinery, and raw materials with which you will buildhouses. The cost per worker is $20,000 per year. In your first year,you plan to hire 48 workers to do the construction work, whichmeans that the annual labor cost of your company will be $960,000(48 x $20,000). With 48 workers, your company can build sevenhouses. You must also buy raw materials--land, wood, nails,plasterboard, and so forth. Each house requires $20,000 worth ofraw materials. The cost of raw materials for seven houses is$140,000 (7 x $20,000). Finally, the bank charges 6% interest on your loan. theinterest cost is $138,000 (6% of $2,300,000). Based on this scenario, what are the total explicit costs foryour construction company A. $1,280,000 B. $960,000 C. $2,300,000 D. $42,000 E. $1,238,000 Based on this scenario, what are the total implicit costs foryour construction company A. $80,000 B. $40,000 C. $1,238,000 D. $42,000 E. $1,280,000 You sell seven homes during the year at a price of $200,000per home. Therefore, your company receives total revenue of$1,400,000 (7 x $200,000. What are the economic profits for yourconstruction company? A. $120,000 B. $1,358,000 C. $0 D. $1,400,000 E. $162,000 When you sell seven homes during the year, what are the totalvariable costs for your construction company? A. $140,000 B. $1,100,000 C. $960,000 D. $40,000 E. $2,300,000 What are the total fixed costs for your constructioncompany? A. $180,000 B. $1,280,000 C. $960,000 D. $140,000 E. $42,000 If you build on one home, what is your average fixedcost? If you build nine homes, what is your average fixedcost?

Explanation / Answer

1)

$138,000+$960,000+$140,000=$1,238,000

E

2)

$42,000=$42,000

D

3)

1,400,000-1,238,000=$162,000

$162,000-42,000=$120,000

A

4)

A

5)

$960,000

C

Same, $ 960,000

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