Jeremy worked at a bank with a monthly salary of $1,500. He decided to quit his job and open a bookstore in his neighborhood. He now pays $500 in rent, $80 in utilities and $120 in wages every month. He also pays the publisher $5 per book sold. This month Jeremy sold 100 books at the price of $30 per book. a. What was the total revenue this month? Calculate this month’s explicit fixed cost, the variable cost and the total cost. b. How much accounting profit did Jeremy make? c. How much economic profit did Jeremy make? d. If Jeremy had not quit his job at the bank, he could have been promoted and got a pay raise of 30 percent. How would this affect his accounting profit and his economic profit?
Jeremy worked at a bank with a monthly salary of $1,500. He decided to quit his job and open a bookstore in his neighborhood. He now pays $500 in rent, $80 in utilities and $120 in wages every month. He also pays the publisher $5 per book sold. This month Jeremy sold 100 books at the price of $30 per book. a. What was the total revenue this month? Calculate this month’s explicit fixed cost, the variable cost and the total cost. b. How much accounting profit did Jeremy make? c. How much economic profit did Jeremy make? d. If Jeremy had not quit his job at the bank, he could have been promoted and got a pay raise of 30 percent. How would this affect his accounting profit and his economic profit?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Jeremy worked at a bank with a monthly salary of $1,500. He decided to quit his job and open a bookstore in
his neighborhood. He now pays $500 in rent, $80 in utilities and $120 in wages every month. He also pays
the publisher $5 per book sold. This month Jeremy sold 100 books at the price of $30 per book.
a. What was the total revenue this month? Calculate this month’s explicit fixed cost, the variable cost
and the total cost.
b. How much accounting profit did Jeremy make?
c. How much economic profit did Jeremy make?
d. If Jeremy had not quit his job at the bank, he could have been promoted and got a pay raise of 30
percent. How would this affect his accounting profit and his economic profit?
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