Attempts: Auerage: 13 1. Definition of economic costs Hubert lives in San Franci
ID: 2495691 • Letter: A
Question
Attempts: Auerage: 13 1. Definition of economic costs Hubert lives in San Francisco and runs a business that sells boats. In an average year, he receives $851,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $476,000; he also pays wages and utility bills totaling $281,000. He owns his showroom; if he chooses to rent it out, he will receive $71,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Hubert does not operate this boat business, he can work as an accountant and receive an annual salary of 4,000 with no additional monetary costs. No other costs are incurred in running this boat business. Identify each of Hubert's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The wages and utility bills that Hubert pays The rental income Hubert could receive if he chose to rent out his showroom The salary Hubert could earn if he worked as an accountant The wholesale cost for the boats that Hubert pays the manufacturer Complete the following table by determining Hubert's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit should Economic Profit should not If Hubert's goal is to maximize his economic profit, he an accountant would be stay in the boat business because the economic profit he would earn asExplanation / Answer
Ans.
wages and utility Expenses- explicit costs
rent and income - implicit costs
the salary if he works for the same- implicit cost
the wholesale cost is - explicit cost
Accounting profit = Revenue- Implicit cost
Economic profit = Revenue - (Implicit cost + Explicit cost)
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