### Accounting and Economic Profit Analysis **Scenario Overview:** John Jones owns and manages a café in Collegetown with a monthly revenue of $5,000. If John were not running the café, he could earn $1,000 per month as a recycler of aluminum cans. Below is a breakdown of the café's monthly expenses: | Expense | Amount | |--------------------------------|---------| | Labor | $2,000 | | Food & drink | $500 | | Electricity | $100 | | Vehicle lease | $200 | | Rent | $500 | | Interest on equipment loan | $1,000 | **Questions and Solutions:** 1. **John’s Accounting Profit:** - The accounting profit is essentially the total revenue minus the explicit costs. - Choices: - a. $5,000, the same as the total revenue of the café. - b. $3,350, what's left over after paying the sunk cost. - c. $2,400, the difference between TR and marginal cost. - d. $750, the difference between TR and total explicit cost. 2. **John’s Economic Profit:** - The economic profit takes into account both explicit and implicit costs. - Choices: - a. -$250. - b. 0. - c. $2,000. - d. $4,000. **Instructions:** - Refer to Textbook, Chapter 13, p. 276, Problems & Applications #4. - Complete the table provided in this problem set, then answer questions 17 – 20. - [NOTE: There is no need to submit the table; it is a tool to help answer the questions.]
### Accounting and Economic Profit Analysis **Scenario Overview:** John Jones owns and manages a café in Collegetown with a monthly revenue of $5,000. If John were not running the café, he could earn $1,000 per month as a recycler of aluminum cans. Below is a breakdown of the café's monthly expenses: | Expense | Amount | |--------------------------------|---------| | Labor | $2,000 | | Food & drink | $500 | | Electricity | $100 | | Vehicle lease | $200 | | Rent | $500 | | Interest on equipment loan | $1,000 | **Questions and Solutions:** 1. **John’s Accounting Profit:** - The accounting profit is essentially the total revenue minus the explicit costs. - Choices: - a. $5,000, the same as the total revenue of the café. - b. $3,350, what's left over after paying the sunk cost. - c. $2,400, the difference between TR and marginal cost. - d. $750, the difference between TR and total explicit cost. 2. **John’s Economic Profit:** - The economic profit takes into account both explicit and implicit costs. - Choices: - a. -$250. - b. 0. - c. $2,000. - d. $4,000. **Instructions:** - Refer to Textbook, Chapter 13, p. 276, Problems & Applications #4. - Complete the table provided in this problem set, then answer questions 17 – 20. - [NOTE: There is no need to submit the table; it is a tool to help answer the questions.]
Chapter1: Making Economics Decisions
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![### Accounting and Economic Profit Analysis
**Scenario Overview:**
John Jones owns and manages a café in Collegetown with a monthly revenue of $5,000. If John were not running the café, he could earn $1,000 per month as a recycler of aluminum cans. Below is a breakdown of the café's monthly expenses:
| Expense | Amount |
|--------------------------------|---------|
| Labor | $2,000 |
| Food & drink | $500 |
| Electricity | $100 |
| Vehicle lease | $200 |
| Rent | $500 |
| Interest on equipment loan | $1,000 |
**Questions and Solutions:**
1. **John’s Accounting Profit:**
- The accounting profit is essentially the total revenue minus the explicit costs.
- Choices:
- a. $5,000, the same as the total revenue of the café.
- b. $3,350, what's left over after paying the sunk cost.
- c. $2,400, the difference between TR and marginal cost.
- d. $750, the difference between TR and total explicit cost.
2. **John’s Economic Profit:**
- The economic profit takes into account both explicit and implicit costs.
- Choices:
- a. -$250.
- b. 0.
- c. $2,000.
- d. $4,000.
**Instructions:**
- Refer to Textbook, Chapter 13, p. 276, Problems & Applications #4.
- Complete the table provided in this problem set, then answer questions 17 – 20.
- [NOTE: There is no need to submit the table; it is a tool to help answer the questions.]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F89088b9f-dfe8-4049-b1e5-10c183216d1d%2F3f7cf79f-21ca-4e41-9bcd-4b969a4cfec9%2F6tl0x3b.jpeg&w=3840&q=75)
Transcribed Image Text:### Accounting and Economic Profit Analysis
**Scenario Overview:**
John Jones owns and manages a café in Collegetown with a monthly revenue of $5,000. If John were not running the café, he could earn $1,000 per month as a recycler of aluminum cans. Below is a breakdown of the café's monthly expenses:
| Expense | Amount |
|--------------------------------|---------|
| Labor | $2,000 |
| Food & drink | $500 |
| Electricity | $100 |
| Vehicle lease | $200 |
| Rent | $500 |
| Interest on equipment loan | $1,000 |
**Questions and Solutions:**
1. **John’s Accounting Profit:**
- The accounting profit is essentially the total revenue minus the explicit costs.
- Choices:
- a. $5,000, the same as the total revenue of the café.
- b. $3,350, what's left over after paying the sunk cost.
- c. $2,400, the difference between TR and marginal cost.
- d. $750, the difference between TR and total explicit cost.
2. **John’s Economic Profit:**
- The economic profit takes into account both explicit and implicit costs.
- Choices:
- a. -$250.
- b. 0.
- c. $2,000.
- d. $4,000.
**Instructions:**
- Refer to Textbook, Chapter 13, p. 276, Problems & Applications #4.
- Complete the table provided in this problem set, then answer questions 17 – 20.
- [NOTE: There is no need to submit the table; it is a tool to help answer the questions.]
Expert Solution
Step 1
Accounting profit is calculated as:
Where explicit costs are the sum of all the costs given in the table, which amounts to $4,250.
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