## Problem 14: Business Analysis in New York CityLorenzo owns a guitar-selling business in New York City. Here’s a financial breakdown of his operations:- **Annual Revenue**: Lorenzo earns $851,000 from selling guitars.- **Costs**: - **Wholesale Cost**: $476,000 is paid to the manufacturer. - **Wages and Utilities**: Total $281,000.- Lorenzo owns a showroom that can be rented out for $71,000 annually.- As an alternative to running the guitar business, Lorenzo could earn $34,000 as an accountant.### Questions#### a. Cost Types- **Explicit Costs**: Wholesale costs and wages/utilities are explicit, requiring direct monetary payment.- **Implicit Costs**: Potential rent from the showroom and the foregone accountant salary are implicit, representing lost opportunities.#### b. Total CostLorenzo’s total costs including explicit and implicit factors.#### c. Total RevenueThe total sales revenue generated from his guitar business: $851,000.#### d. Accounting ProfitCalculate as total revenue minus explicit costs.#### e. Economic ProfitDetermine by subtracting both explicit and implicit costs from total revenue.#### f. Profit EvaluationDoes Lorenzo earn a normal profit? Assessing whether he should pursue accounting for better economic gain or continue with the guitar business.This analysis helps determine the viability and profitability of Lorenzo’s business endeavors by comparing his actual earnings with potential opportunity costs.

Q 14.Individual L sells guitars (G).Sale revenue in a year = $851000Wholesale cost = $476000Wages and utility bills = $281000Individual L earns an annual salary as an accountant = $34000 Part a.Explicit cost is the out of the pocket expenses incurred by individual L.Implicit cost is the opportunity cost of individual L to sell G instead ofworking as an accountant. Explicit costs = $476000 + $281000 = $757000Implicit cost = $34000 Part b.Total cost of individual L:C = Implicit cost + Explicit costsC = $757000 + $34000C = $791000 Part c.Total revenue of individual L:R = $851000 Part d.Accounting profit of individual L:= Total revenue - Explicit costs= $851000 - $757000= $94000 Part e.Economic profit of individual L:= Total revenue - Total cost= $851000 - $791000=$60000 Part f.No, individual L is not earning a normal or zero economic profit. He is earning a positive economic profit from G business.He will remain in G business and not quit to be an accountant.

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c. What is Lorenzo's total revenue? d. What is Lorenzo's accounting profit? e. What is Lorenzo's economic profit? f. Is Lorenzo earning a normal profit? If his goal is to maximize economic profit, should Lorenzo quit t

c. What is Lorenzo's total revenue? d. What is Lorenzo's accounting profit? e. What is Lorenzo's economic profit? f. Is Lorenzo earning a normal profit? If his goal is to maximize economic profit, should Lorenzo quit t

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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