Dmitri lives in Dallas and runs a business that sells pianos. In an average year, he receives $722,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $422,000; he also pays wages and utility bills totaling $268,000. He owns his showroom; if he chooses to rent it out, he will receive $2,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Dmitri does not operate this piano business, he can work as a paralegal, receive an annual salary of $21,000 with no additional monetary costs, and rent out his showroom at the $2,000 per year rate. No other costs are incurred in running this piano business. Identify each of Dmitri's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The wages and utility bills that Dmitri pays The rental income Dmitri could receive if he chose to rent out his showroom The wholesale cost for the pianos that Dmitri pays the manufacturer The salary Dmitri could earn if he worked as a paralegal Complete the following table by determining Dmitri's accounting and economic profit of his piano business. Profit (Dollars) Accounting Profit Economic Profit
Dmitri lives in Dallas and runs a business that sells pianos. In an average year, he receives $722,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $422,000; he also pays wages and utility bills totaling $268,000. He owns his showroom; if he chooses to rent it out, he will receive $2,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Dmitri does not operate this piano business, he can work as a paralegal, receive an annual salary of $21,000 with no additional monetary costs, and rent out his showroom at the $2,000 per year rate. No other costs are incurred in running this piano business. Identify each of Dmitri's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The wages and utility bills that Dmitri pays The rental income Dmitri could receive if he chose to rent out his showroom The wholesale cost for the pianos that Dmitri pays the manufacturer The salary Dmitri could earn if he worked as a paralegal Complete the following table by determining Dmitri's accounting and economic profit of his piano business. Profit (Dollars) Accounting Profit Economic Profit
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![**Case Study: Dmitri's Piano Business**
Dmitri lives in Dallas and runs a business that sells pianos. In an average year, he receives $722,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $422,000; he also pays wages and utility bills totaling $268,000. He owns his showroom; if he chooses to rent it out, he will receive $2,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Dmitri does not operate this piano business, he can work as a paralegal, receive an annual salary of $21,000 with no additional monetary costs, and rent out his showroom at the $2,000 per year rate. No other costs are incurred in running this piano business.
**Identify each of Dmitri's costs in the following table as either an implicit cost or an explicit cost of selling pianos.**
| Cost Description | Implicit Cost | Explicit Cost |
|----------------------------------------------------------------------------|---------------|---------------|
| The wages and utility bills that Dmitri pays | | ○ |
| The rental income Dmitri could receive if he chose to rent out his showroom | ○ | |
| The wholesale cost for the pianos that Dmitri pays the manufacturer | | ○ |
| The salary Dmitri could earn if he worked as a paralegal | ○ | |
**Complete the following table by determining Dmitri’s accounting and economic profit of his piano business.**
| Profit | (Dollars) |
|----------------------|-----------------|
| **Accounting Profit**| |
| **Economic Profit** | |
**Explanation:**
- **Accounting Profit** is calculated as the total revenue minus explicit costs.
\[
Accounting\ Profit = Total\ Revenue - Explicit\ Costs
\]
In Dmitri's case:
\[
Total\ Revenue = \$722,000
\]
\[
Explicit\ Costs = \$422,000\ (wholesale\ cost)\ +\ \$268,000\ (wages\ and\ utility\ bills)
\]
\[
Accounting\ Profit = \$722,000 - (\$422,000 + \$268,000) = \$32,000
\]
- **Economic Profit**](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3c66bc3d-1300-4141-a83b-0a5983915c45%2F589c5ffc-4b18-4786-8078-b76612555f75%2F412i05_processed.png&w=3840&q=75)
Transcribed Image Text:**Case Study: Dmitri's Piano Business**
Dmitri lives in Dallas and runs a business that sells pianos. In an average year, he receives $722,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $422,000; he also pays wages and utility bills totaling $268,000. He owns his showroom; if he chooses to rent it out, he will receive $2,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Dmitri does not operate this piano business, he can work as a paralegal, receive an annual salary of $21,000 with no additional monetary costs, and rent out his showroom at the $2,000 per year rate. No other costs are incurred in running this piano business.
**Identify each of Dmitri's costs in the following table as either an implicit cost or an explicit cost of selling pianos.**
| Cost Description | Implicit Cost | Explicit Cost |
|----------------------------------------------------------------------------|---------------|---------------|
| The wages and utility bills that Dmitri pays | | ○ |
| The rental income Dmitri could receive if he chose to rent out his showroom | ○ | |
| The wholesale cost for the pianos that Dmitri pays the manufacturer | | ○ |
| The salary Dmitri could earn if he worked as a paralegal | ○ | |
**Complete the following table by determining Dmitri’s accounting and economic profit of his piano business.**
| Profit | (Dollars) |
|----------------------|-----------------|
| **Accounting Profit**| |
| **Economic Profit** | |
**Explanation:**
- **Accounting Profit** is calculated as the total revenue minus explicit costs.
\[
Accounting\ Profit = Total\ Revenue - Explicit\ Costs
\]
In Dmitri's case:
\[
Total\ Revenue = \$722,000
\]
\[
Explicit\ Costs = \$422,000\ (wholesale\ cost)\ +\ \$268,000\ (wages\ and\ utility\ bills)
\]
\[
Accounting\ Profit = \$722,000 - (\$422,000 + \$268,000) = \$32,000
\]
- **Economic Profit**
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