Problems

Workbook P. 127, Act 3-3

Module 52, problems

Pg . 578, 1-3

I bought $10,000 in lawn mowers, and this money was withdrawn from my bank savings account which earned 10% interest. I could rent the lawn mowers out for $2000. Depreciation on the lawn mowers is 5% per year.

What are the implicit and explicit costs?

Your firm is selling 10,000 units of output at a price of $10 per

unit. Your firm’s total explicit cost is $70,000. Your firm’s

implicit cost of capital is $10,000, and your opportunity cost

is $20,000.

a. Calculate total revenue.

b. Calculate total implicit cost.

c. Calculate your accounting profit.

d. Calculate your economic profit.

e. What does the value of your economic profit calculated in

part d tell you?

Answer (5 points)

1 point: Total revenue = $100,000

1 point: Total implicit cost = $30,000

1 point: Accounting profit = $30,000

1 point: Economic profit = $0

1 point: Because your firm earns normal profit, there is no better alternative

use for your resources.

2. Sunny owns and operates Sunny’s Sno Cone Stand. Use the

data in the table provided to answer the questions below.

Sunny’s Sno Cone Stand: January

-Price of Sno Cone $2

-Sno Cones sold 2,000

-Explicit cost $400

-Implicit cost of capital $200

a. Calculate Sunny’s Sno Cone Stand’s total revenue for

January.

b. Calculate Sunny’s Sno Cone Stand’s accounting profit

for January.

c. What additional information would Sunny need in order

to determine whether or not to continue operating the

Sno Cone Stand?

d. Explain how Sunny would determine whether or not

to continue operating the business on the basis of these

numbers.

a.)4000

b)3600

c)other implicit costs like his labor

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