Sean lives in San Diego and runs a business that sells pianos. In an average year, he receives $724,000 in revenue from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $424,000; he also pays wages and utility bills totaling $266,000. He owns his showroom if he chooses to rent it out, he will receive $4,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, Sean does not operate this piano business, he can work as a paralegal and receive an annual salary of $21,000 with no additional monetary costs. N other costs are incurred in running this piano business. Identify each of Sean's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The wages and utility bills that Sean pays The rental income Sean could receive if he chose to rent out his showroom The salary Sean could earn if he worked as a paralegal The wholesale cost for the pianos that Sean pays the manufacturer Accounting Profit Economic Profit Complete the following table by determining Sean's accounting and economic profit of his piano business. Profit (Dollars) 34,000 9,000 Alternatively, the economic profit he would earn as a paralegal would be $ O If Sean's goal is to maximize his economic profit, he O stay in the piano business.
Sean lives in San Diego and runs a business that sells pianos. In an average year, he receives $724,000 in revenue from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $424,000; he also pays wages and utility bills totaling $266,000. He owns his showroom if he chooses to rent it out, he will receive $4,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, Sean does not operate this piano business, he can work as a paralegal and receive an annual salary of $21,000 with no additional monetary costs. N other costs are incurred in running this piano business. Identify each of Sean's costs in the following table as either an implicit cost or an explicit cost of selling pianos. Implicit Cost Explicit Cost The wages and utility bills that Sean pays The rental income Sean could receive if he chose to rent out his showroom The salary Sean could earn if he worked as a paralegal The wholesale cost for the pianos that Sean pays the manufacturer Accounting Profit Economic Profit Complete the following table by determining Sean's accounting and economic profit of his piano business. Profit (Dollars) 34,000 9,000 Alternatively, the economic profit he would earn as a paralegal would be $ O If Sean's goal is to maximize his economic profit, he O stay in the piano business.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:**Sean's Piano Business Analysis**
Sean lives in San Diego and operates a piano sales business. In a typical year, his revenue from selling pianos totals $724,000. The breakdown of his expenses includes paying $424,000 to the manufacturer (wholesale cost) and $266,000 for wages and utility bills. He owns his showroom, which does not depreciate, and it can generate $4,000 annually if rented out. If Sean does not manage his piano business, he could work as a paralegal, with a potential salary of $21,000 annually.
**Cost Classification Table**
Identify each of Sean's costs as either an implicit or explicit cost of selling pianos:
| Costs | Implicit Cost | Explicit Cost |
|-----------------------------------------------------------|---------------|---------------|
| The wages and utility bills that Sean pays | ○ | ● |
| The rental income Sean could receive from renting showroom| ● | ○ |
| The salary Sean could earn as a paralegal | ● | ○ |
| The wholesale cost Sean pays for pianos | ○ | ● |
**Profit Calculation**
Determine Sean's accounting and economic profit:
- **Accounting Profit**: $34,000
- **Economic Profit**: $9,000
When considering working as a paralegal, his economic profit would be $_______.
Decision: If Sean aims to maximize his economic profit, he should __________ stay in the piano business.
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