Chapter 52, Problem 2FRQ

a)

To determine

Total revenue

Explanation of Solution

Quantity output = 2,000

Price = $2 per slice

Then,

  $\begin{array}{l}\text{Total revenue = Price per unit}\times \text{Qunatity}\hfill \\ \text{ = \$2}\times \text{2,000}\hfill \\ \text{ = \$4,000}\hfill \end{array}$

Economics Concept Introduction

Introduction: Total revenue is the multiplication of quantity output and the price per unit.

b)

To determine

Accounting profit

Explanation of Solution

  $\begin{array}{l}\text{Accounting profit = Total revenue}-\text{Explicit cost}-\text{Depriciation cost}\hfill \\ =\$4,000-\$400-\$100\hfill \\ =\$3,500\hfill \end{array}$

Economics Concept Introduction

Introduction: The difference of total revenue and explicit cost refers to the accounting profit.

c)

To determine

The additional information that M needs to determine whether or not to continue operating the business of Meatloaf Stand.

Explanation of Solution

M needs to know opportunity cost and what else she could do instead of operating this business or Meatloaf Stand such as whether it is better for him to get job or not. For the time investment he needs to know about the opportunity cost.

Economics Concept Introduction

Introduction: Economic profit refers to the difference between the revenue which is received from the sale and the costs of inputs including opportunity costs.

d)

To determine

The way through which M can determine whether or not to continue operating the business in the long run if numbers remain unchanged.

Explanation of Solution

M needs to determine economic profit and whether or not he should continue operating the business in the position where he is getting at least normal profit. His economic profit would be:

  $\begin{array}{l}\text{Total revenue}-\text{explicit costs}-\text{implicit costs}-\text{Depreciation}\hfill \\ =4,000-\$400-\$200-\$100\hfill \\ =\$3,300.\hfill \end{array}$

From the economic profit of $3,300 it is clear that if M’s opportunity cost of time is less than or equal to the amount, then he will make at least normal profit and it is possible for him to continue operating the business of Meatloaf Stand.

Economics Concept Introduction

Introduction: Economic profit refers to the difference between the revenue which is received from the sale and the costs of inputs including opportunity costs.