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A certain firm produces and sells staplers. Last year, it produced 7,000 staplers and sold each...

A certain firm produces and sells staplers. Last year, it produced 7,000 staplers and sold each stapler for $6. In producing the 7,000 staplers, it incurred variable costs of $28,000 and a total explicit cost of $45,000. Suppose the owner of the business had an offer to work for another firm that raises his opportunity cost by $25,000.

a. What is total revenue for this firm?

b. What is the implicit cost for the owner?

c. What is fixed cost for this firm?

d. What is the firm’s economic profit?

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Answer #1

a) Firms total revenue will be quantity of the goods sold x price = 7000 x 6 = 42,000.

b) Implicit cost is the opportunity cost that the owner gave up, it will be 25,000.

c) Total cost of the firm is 45,000 out of which the variable cost of the firm will be 28,000 the fixed cost will be 17,000.

d) Economic profit = accounting profit - opportunity cost, accounting profit will be -3000 and economic profit will be -28000.

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