Complete the following table by determining Hubert's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit Alternatively, the economic profit he would earn as an accountant would be $ If Hubert's goal is to maximize his economic profit, he True or false: Hubert is earning a normal profit. True False stay in the boat business.
Complete the following table by determining Hubert's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit Alternatively, the economic profit he would earn as an accountant would be $ If Hubert's goal is to maximize his economic profit, he True or false: Hubert is earning a normal profit. True False stay in the boat business.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Complete the following table by determining Hubert's accounting and economic profit of his boat business.
Profit
(Dollars)
Accounting Profit
Economic Profit
Alternatively, the economic profit he would earn as an accountant would be $
If Hubert's goal is to maximize his economic profit, he
True or false: Hubert is earning a normal profit.
True
False
stay in the boat business.
Transcribed Image Text:Hubert lives in Denver and runs a business that sells boats. In an average year, he receives $842,000 from selling boats. Of this sales revenue, he
must pay the manufacturer a wholesale cost of $452,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses
to rent it out, he will receive $38,000 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 $48,000 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 wholesale cost for the boats that Hubert pays the manufacturer
The salary Hubert could earn if he worked as an accountant
The wages and utility bills that Hubert pays
The rental income Hubert could receive if he chose to rent out his showroom
O
Expert Solution
Step 1
Implicit cost refers to the opportunity cost which is involved in doing a business. It is not a monetary payment but a loss incurred by giving up the next best alternative while making a decision.
Explicit cost requires a monetary payment. This is the actual cost that a firm bears while doing a business.
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