Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 7, Problem 2.3P
To determine
Estimate the wage of less skilled worker.
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Suppose Alex owns a business making quilts that generates $7,000 a month in revenue. Each month, Alex spends $1,600 on fabric and other sewing materials, and he pays his two employees a combined total of $4,000 per month (they each earn $2,000). Alex makes his quilts in a workshop he has set up in his basement. If Alex did not own the quilt business, he would work as a yoga instructor earning $2,200 per month, and he would use the basement as a TV room, an option he would value at $60 per month.
a. What is Alex's accounting profit?
Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-).
$
b. What is Alex's economic profit?
Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-).
$
c. If the market for quilts is perfectly competitive, and other quilt producers face the same costs as Alex, then what would you expect to happen to…
You are planning a move across town. Doing your research you find that the average rate of a moving company is $250 per hour for two movers (moving truck included). The marginal benefit you receive from each hour of the two movers’ time (and truck) is listed in the accompanying table.
Hours of movers’ time
Marginal benefit
1 hour
$850
2 hours
$620
3 hours
$500
4 hours
$250
5 hours
$150
6 hours
$100
7 hours
$0
For how many hours should you hire the movers? How much consumer surplus do you receive?
Now suppose that instead of paying per hour, a moving company offers a flat rate of $1,500 for two movers plus a truck for an eight-hour day. Would you hire the movers? How has your consumer surplus changed?
Paul owns and operates his own business. To keep up with new technology, he spends $3,000 per year upgrading his computer equipment. He runs the business out of an office in the center. If he didn't use the office as his business office, he could rent it out for $12,000 per year. Paul knows that if he didn't run his own business, he could return to his previous job with a salary of $100,000 per year. Other expenses amount $25,000 per year. How much total revenue does Paul need to make in order for him to want to remain self-employed?
A) $128,000
(B) $140,000
C) $28,000
D) None of the answers are correct.
Chapter 7 Solutions
Principles of Economics (12th Edition)
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