1. Definition of economic costs Clancy lives in San Francisco and operates a small company selling drones. On average, he receives $712,000 per year from selling drones. Out of this revenue from sales, he must pay the manufacturer a wholesale cost of $412,000. He also pays several utility companies, as well as his employees wages totaling $269,000. He owns the building that houses his storefront; if he choose to rent it out, he would receive a yearly amount of $1,000 in rent. Assume there is no depreciation in the value of his property over the year. Further, if Clancy does not operate the drone business, he can work as a nurse and earn a yearly salary of $21,000 with no additional monetary costs, and rent out his storefront at the $1,000 per year rate. There are no other costs faced by Clancy in running this drone company. Identify each of Clancy's costs in the following table as either an implicit cost or an explicit cost of selling drones. Implicit Cost Explicit Cost The rental income Clancy could receive if he chose to rent out his showroom The wages that Clancy pays The wholesale cost for the drones that Clancy pays the manufacturer The salary Clancy could earn if he worked as a nurse Complete the following table by determining Clancy's accounting and economic profit of his drone business. Accounting Profit Economic Profit Profit (Dollars)
1. Definition of economic costs Clancy lives in San Francisco and operates a small company selling drones. On average, he receives $712,000 per year from selling drones. Out of this revenue from sales, he must pay the manufacturer a wholesale cost of $412,000. He also pays several utility companies, as well as his employees wages totaling $269,000. He owns the building that houses his storefront; if he choose to rent it out, he would receive a yearly amount of $1,000 in rent. Assume there is no depreciation in the value of his property over the year. Further, if Clancy does not operate the drone business, he can work as a nurse and earn a yearly salary of $21,000 with no additional monetary costs, and rent out his storefront at the $1,000 per year rate. There are no other costs faced by Clancy in running this drone company. Identify each of Clancy's costs in the following table as either an implicit cost or an explicit cost of selling drones. Implicit Cost Explicit Cost The rental income Clancy could receive if he chose to rent out his showroom The wages that Clancy pays The wholesale cost for the drones that Clancy pays the manufacturer The salary Clancy could earn if he worked as a nurse Complete the following table by determining Clancy's accounting and economic profit of his drone business. Accounting Profit Economic Profit Profit (Dollars)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. Definition of economic costs
Clancy lives in San Francisco and operates a small company selling drones. On average, he receives $712,000 per year from selling drones. Out of this
revenue from sales, he must pay the manufacturer a wholesale cost of $412,000. He also pays several utility companies, as well as his employees
wages totaling $269,000. He owns the building that houses his storefront; if he choose to rent it out, he would receive a yearly amount of $1,000 in
rent. Assume there is no depreciation in the value of his property over the year. Further, if Clancy does not operate the drone business, he can work
as a nurse and earn a yearly salary of $21,000 with no additional monetary costs, and rent out his storefront at the $1,000 per year rate. There are
no other costs faced by Clancy in running this drone company.
Identify each of Clancy's costs in the following table as either an implicit cost or an explicit cost of selling drones.
Implicit Cost
Explicit Cost
The rental income Clancy could receive if he chose to rent out his showroom
The wages that Clancy pays
The wholesale cost for the drones that Clancy pays the manufacturer
The salary Clancy could earn if he worked as a nurse
Complete the following table by determining Clancy's accounting and economic profit of his drone business.
Accounting Profit
Economic Profit
Profit
(Dollars)
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