3. Definition of economic costsJacques lives in San Francisco and runs a business that sells guitars. In an average year, he receives $711,000 from selling guitars. Of this salesrevenue, he must pay the manufacturer a wholesale cost of $411,000; he also pays wages and utility bills totaling $279,000. He owns his showroom;if he chooses to rent it out, he will receive $1,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, ifJacques does not operate this guitar business, he can work as a financial advisor and receive an annual salary of $31,000 with no additional monetarycosts. No other costs are incurred in running this guitar business.Identify each of Jacques's costs in the following table as either an implicit cost or an explicit cost of selling guitars.Implicit CostExplicit CostThe wholesale cost for the guitars that Jacques pays the manufacturerThe wages and utility bills that Jacques paysThe rental income Jacques could receive if he chose to rent out his showroomThe salary Jacques could earn if he worked as a financial advisor Complete the following table by determining Jacques's accounting and economic profit of his guitar business.Profit(Dollars)Accounting ProfitEconomic ProfitAlternatively, the economic profit he would earn as a financial advisor would be $If Jacques's goal is to maximize his economic profit, heTrue or false: Jacques is earning a normal profit.FalseTrueshouldshould notstay in the guitar business.

Explicit cost is the actual monetary expenditure to run a business. Implicit cost is the…

Jacques lives in San Francisco and runs a business that sells guitars. In an average year, he receives $711,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $411,000; he also pays wages and utility bills totaling $279,000. He owns his showroom; if he chooses to rent it out, he will receive $1,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Jacques does not operate this guitar business, he can work as a financial advisor and receive an annual salary of $31,000 with no additional monetary costs. No other costs are incurred in running this guitar business.

Jacques lives in San Francisco and runs a business that sells guitars. In an average year, he receives $711,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $411,000; he also pays wages and utility bills totaling $279,000. He owns his showroom; if he chooses to rent it out, he will receive $1,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Jacques does not operate this guitar business, he can work as a financial advisor and receive an annual salary of $31,000 with no additional monetary costs. No other costs are incurred in running this guitar business.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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