Q#1. Last year, M.Hamed left a job that pays 36,000 OMR to run his own bike-repair shop. M. Hamed’s shop charges 5 OMR for a repair, and last year the shop performed 7,000 repairs. M. Hamed’s production costs for the year included rent, wages, and equipment. M. Hamed spent 6,000 OMR on rent and 18,000 OMR on wages for his employees. M. Hamed keeps whatever profit the shop earns but does not pay himself an official wage. M. Hamed borrowed 20,000 OMR for the shop’s equipment at an annual interest rate of 6 percent. a. What is M. Hamed’s accounting profit? b. What is M. Hamed’s economic profit? c. Is the decision to leave the job and run the bike business, good? Why?
Q#1. Last year, M.Hamed left a job that pays 36,000 OMR to run his own bike-repair shop. M. Hamed’s shop charges 5 OMR for a repair, and last year the shop performed 7,000 repairs. M. Hamed’s production costs for the year included rent, wages, and equipment. M. Hamed spent 6,000 OMR on rent and 18,000 OMR on wages for his employees. M. Hamed keeps whatever profit the shop earns but does not pay himself an official wage. M. Hamed borrowed 20,000 OMR for the shop’s equipment at an annual interest rate of 6 percent. a. What is M. Hamed’s accounting profit? b. What is M. Hamed’s economic profit? c. Is the decision to leave the job and run the bike business, good? Why?
Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter7: Production, Inputs, And Cost: Building Blocks For Supply Analysis
Section: Chapter Questions
Problem 9TY
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Q#1. Last year, M.Hamed left a job that pays 36,000 OMR to run his own bike-repair shop. M. Hamed’s shop charges 5 OMR for a repair, and last year the shop performed 7,000 repairs. M. Hamed’s production costs for the year included rent, wages, and equipment. M. Hamed spent 6,000 OMR on rent and 18,000 OMR on wages for his employees. M. Hamed keeps whatever profit the shop earns but does not pay himself an official wage. M. Hamed borrowed 20,000 OMR for the shop’s equipment at an annual interest rate of 6 percent.
a. What is M. Hamed’s accounting profit?
b. What is M. Hamed’s economic profit?
c. Is the decision to leave the job and run the bike business, good? Why?
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