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3 years ago

Definition of economic costs

Business

1 answer:

VikaD [51]3 years ago

6 0

Answer:

Definition of Economic Costs

Implicit and Explicit Costs:

The wholesale cost for the pianos that Darnell pays the manufacturer Explicit Cost

The salary Darnell could earn if he worked as an accountant Implicit Cost

The wages and utility bills that Darnell pays Explicit Costs

The rental income Darnell could receive if he chose to rent out his showroom Implicit Cost

Complete the following table by determining Darnell's accounting and economic profit of his piano business.

Profit

(Dollars)

Accounting Profit $89,000

Economic Profit $3,000 ($89,000 - 86,000)

If Darnell's goal is to maximize his economic profit, he( should, should not) stay in the piano business because the economic profit he would earn as an accountant would be $__86,000____.

This economic profit includes the rental and salary income that Darnell can earn.

Explanation:

a) Data:

Sales Revenue = $842,000

Cost of goods sold 452,000

Wages & Utilities = 301,000

Opportunity cost of showroom = $38,000

Opportunity cost of employment = $48,000

Total opportunity cost = $86,000

Profit (Dollars)

Sales Revenue = $842,000

Cost of goods sold 452,000

Gross profit $390,000

Wages & Utilities = 301,000

Net Income $89,000

Opportunity cost of showroom = $38,000

Opportunity cost of employment = $48,000

Total opportunity cost = $86,000

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