Rajiv lives in Denver and runs a business that sells boats. In an average year, he receives $842,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $452,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $38,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Rajiv does not operate this boat business, he can work as an accountant, receive an annual salary of $48,000 with no additional monetary costs, and rent out his showroom at the $38,000 per year rate. No other costs are incurred in running this boat business. Identify each of Rajiv's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The wholesale cost for the boats that Rajiv pays the manufacturer The wages and utility bills that Rajiv pays The rental income Rajiv could receive if he chose to rent out his showroom The salary Rajiv could earn if he worked as an accountant Complete the following table by determining Rajiv's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit
Rajiv lives in Denver and runs a business that sells boats. In an average year, he receives $842,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $452,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $38,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Rajiv does not operate this boat business, he can work as an accountant, receive an annual salary of $48,000 with no additional monetary costs, and rent out his showroom at the $38,000 per year rate. No other costs are incurred in running this boat business. Identify each of Rajiv's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The wholesale cost for the boats that Rajiv pays the manufacturer The wages and utility bills that Rajiv pays The rental income Rajiv could receive if he chose to rent out his showroom The salary Rajiv could earn if he worked as an accountant Complete the following table by determining Rajiv's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
I am having trouble understanding how to calculate the economic and accounting profits for this question. I know that Accounting profit is Revenue - all costs, but based on how this question is phrased, it isn't clear exactly what is being considered revenues and costs incurred. If you could help me understand these calcualations better, that would be great! Thanks!
Transcribed Image Text:Rajiv lives in Denver and runs a business that sells boats. In an average year, he receives $842,000 from selling boats. Of this sales revenue, he must
pay the manufacturer a wholesale cost of $452,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to
rent it out, he will receive $38,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Rajiv does not
operate this boat business, he can work as an accountant, receive an annual salary of $48,000 with no additional monetary costs, and rent out his
showroom at the $38,000 per year rate. No other costs are incurred in running this boat business.
Identify each of Rajiv's costs in the following table as either an implicit cost or an explicit cost of selling boats.
Implicit Cost
Explicit Cost
The wholesale cost for the boats that Rajiv pays the manufacturer
The wages and utility bills that Rajiv pays
The rental income Rajiv could receive if he chose to rent out his showroom
The salary Rajiv could earn if he worked as an accountant
Complete the following table by determining Rajiv's accounting and economic profit of his boat business.
Profit
(Dollars)
Accounting Profit
Economic Profit
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education