Answered: Charles lives in Houston and operates a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Charles lives in Houston and operates a small company selling drones. On average, he receives $849,000 per year from selling drones. Out of this revenue from sales, he must pay the manufacturer a wholesale cost of $390,000. He also pays several utility companies, as well as his employees wages totaling $359,000. He owns the building that houses his storefront; if he choose to rent it out, he would receive a yearly amount of $72,000 in rent. Assume there is no depreciation in the value of his property over the year. Further, if Charles does not operate the drone business, he can work as a programmer and earn a yearly salary of $25,000 with no additional monetary costs, and rent out his storefront at the $72,000 per year rate. There are no other costs faced by Charles in running this drone company.

Identify each of Charles’s costs in the following table as either an implicit cost or an explicit cost of selling drones.

	Implicit Cost	Explicit Cost
The salary Charles could earn if he worked as a programmer
The wages that Charles pays
The wholesale cost for the drones that Charles pays the manufacturer
The rental income Charles could receive if he chose to rent out his showroom

Complete the following table by determining Charles’s accounting and economic profit of his drone business.

	Profit
(Dollars)
Accounting Profit
Economic Profit

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