Joe runs a small boat factory. He can make ten boats per year and sell them for €25,000 each. It costs Joe €150,000 for the raw materials (fibreglass, wood, paint, and so on) to build the ten boats. Joe has invested €400,000 in the factory and equipment needed to produce the boats: €200,000 from his own savings and €200,000 borrowed at 10 percent interest. (Assume that Joe could have loaned his money out at 10 percent, too.) Joe can work at a competing boat factory for €70,000 per year.
Joe runs a small boat factory. He can make ten boats per year and sell them for €25,000 each. It costs Joe €150,000 for the raw materials (fibreglass, wood, paint, and so on) to build the ten boats. Joe has invested €400,000 in the factory and equipment needed to produce the boats: €200,000 from his own savings and €200,000 borrowed at 10 percent interest. (Assume that Joe could have loaned his money out at 10 percent, too.) Joe can work at a competing boat factory for €70,000 per year.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Joe runs a small boat factory. He can make ten boats per year and sell them for €25,000 each. It costs Joe €150,000 for the raw materials (fibreglass, wood, paint, and so on) to build the ten boats. Joe has invested €400,000 in the factory and equipment needed to produce the boats: €200,000 from his own savings and €200,000 borrowed at 10 percent interest. (Assume that Joe could have loaned his money out at 10 percent, too.) Joe can work at a competing boat factory for €70,000 per year.
-
- What is the total revenue Joe can earn in a year?
- What are the explicit costs Joe incurs while producing ten boats?
- What are the total
opportunity costs of producing ten boats (explicit and implicit) - What is the value of Joe's accounting and economic profit?
- Is it truly profitable for Joe to operate his boat factory? Explain.
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