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# Homework (Ch 15) Attempts: Keep the Highest: 1. Definition of economic costs Antonio lives in Denver...

Homework (Ch 15) Attempts: Keep the Highest: 1. Definition of economic costs Antonio 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 Antonio 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 Antonio'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 Antonio pays the manufacturer The wages and utility bills that Antonio pays The rental income Antonio could receive if he chose to rent out his showroor The salary Antonio could earn if he worked as an accountant Complete the following table by determining Antonio's accounting and economic profit of his boat business Profit (Dollars) Accounting Profit Economic Profit Grade it Now Save & Continue Continue without saving

 Implicit/Explicit The wholesale cost for the boats that Antonio pays the manufacturer Explicit Cost The wages and utility bills that Antonio pays Explicit Cost The rental income Antonio could receive if he chose to rent out his showroom Implicit Cost The salary Antonio could earn if he worked as an accountant Implicit Cost

Accounting Profit = Revenue – Explicit Cost

= 842,000 – [452,000 + 301,000] = 89,000

Economic Profit = revenue – Explicit Cost – Implicit Cost

= 842,000 –[ 452,000 + 301,000] – [38,000 + 48,000]

= 3000

 profit Accounting Profit 89,000 Economic profit 3000

Implicit  Explicit

 The salary Shen could earn if he worked as a paralegal The rental income Shen could receive if he chose to rent out his showroom The wages and utility bills that Shen pays The wholesale cost for the boats that Shen pays the manufacturer
 Accounting Profit 32,000 Economic Profit 9,000

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