Question

Question 3 Suppose Professor Mary spends $1,000 per year on tax supplies and Cube Smart storage space. She recently received two job offers from a XYZ marketing firm- one offer were for $ 60,000 per year, and the other was for $50,000. However, she turned both jobs down to continue her tax preparation business and storage firm. If Donald sells 10 paintings per year at a price of $900 each: a. What is her total revenue? Explain b. What are her accounting profits? Show your steps leading to your answer C. What are her economic profits? Show your work! d. Which type of profit ( accounting or economic profit) reflects the best use of her time? Explain

Answer 1

a). The total revenue is the all the income earned by her, since she he turned down both the jobs there is the storage firm job only for her so the total revenue would be

Total revenue $=10\times 900$

$=9000$

Ans: $ $9000$.

b). The accounting profits does not take into account the opportunity costs made, it only takes the direct costs made out of the pocket and the total revenue. These direct costs are known as the explicit costs

Accounting profit= Total revenue - Total explicit costs.

  $=9000-1000$

$=8000$

Ans:$ $8000$.

c). To calculate the economic profits we must add the implicit costs too that is the opportunity costs made.

Economic profit= Total revenue - Explicit + Implicit costs.

  $=9000-\left ( 1000+60,000 \right )$

  $=9000-70,000$

  $=-61,000$

d). The economic profit reflects the best use of her time , instead of the storage firm if she did the job she would be earning an addition of $61,000 dollars.