Consider the following scenario: Steven owns his own auto repair shop. He uses his own premises as a workshop. If he had rented his premises to someone else, he would have received R18 000 in rent. He initially invested R50 000 in his business to buy tools and machines. If he had invested the money, he could have earned 10% per year on the money, which is R5 000 per year. If he did not work for himself, he could have earned a salary of R60 000. His expenditure for the year consisted of the following: Oil, petrol, sparkplugs, fan belts and other materials: R70 000 Salary for two junior mechanics: R35 000 Admin costs: R15 000 Assume that the total revenue of the auto shop is R230 000. Calculate Steve's economic profit. a) R203 000 b) R110 000 c) R27 000 d) R32 000
Consider the following scenario: Steven owns his own auto repair shop. He uses his own premises as a workshop. If he had rented his premises to someone else, he would have received R18 000 in rent. He initially invested R50 000 in his business to buy tools and machines. If he had invested the money, he could have earned 10% per year on the money, which is R5 000 per year. If he did not work for himself, he could have earned a salary of R60 000. His expenditure for the year consisted of the following: Oil, petrol, sparkplugs, fan belts and other materials: R70 000 Salary for two junior mechanics: R35 000 Admin costs: R15 000 Assume that the total revenue of the auto shop is R230 000. Calculate Steve's economic profit. a) R203 000 b) R110 000 c) R27 000 d) R32 000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider the following scenario:
Steven owns his own auto repair shop.
He uses his own premises as a workshop. If he had rented his premises to someone else, he would have received R18
000 in rent.
He initially invested R50 000 in his business to buy tools and machines. If he had invested the money, he could have
earned 10% per year on the money, which is R5 000 per year.
If he did not work for himself, he could have earned a salary of R60 000.
His expenditure for the year consisted of the following:
Oil, petrol, sparkplugs, fan belts and other materials: R70 000
Salary for two junior mechanics: R35 000
Admin costs: R15 000
Assume that the total revenue of the auto shop is R230 000.
Calculate Steve's economic profit.
a) R203 000
b) R110 000
c) R27 000
d) R32 000
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