Question

a.)A business owner makes 1000 items a day. Each day she spends 8 hours producing those items. If hired, elsewhere she could have earned $250 an hour. The item sells for $15 each. Production occurs seven days a week. If the explicit costs total $150,000 per month, what is her economic profit?b.) A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly and they costs $10 for every unit produced. The weekly cost of the rent payment for the factory is $2,250. Calculate: TVC, TFC, and TC.c.) Jane makes 1000 items a day. Each day she spends 8 hours producing those items. If hired elsewhere she could have earned $250 an hour. The item sells for $15 each. Production occurs seven days a week. If the explicit costs total $150,000 per month, what is her accounting profit?

Answer 1

Answer:

a) Her economic profit is $240,000 per month

b) Per week, the firm:

  TVC: $5,000

  TFC: $14,250

  TC: $19,250

c) Her accounting profit is $300,000

Explanation:

a)

Assume a 30-day per month basis for calculation.

Her revenue for a month = Number of items made per day * 30 * Selling price per unit = 1,000 * 30 * 15 = $450,000

Her explicit cost per month is given at $150,000

Her implicit cost ( opportunity cost) per month = Her salary could be earned if she works elsewhere = Pay rate per hour * Number of hour working per day * 30 = 250 * 8 * 30 = $60,000

=> Her economic profit per month = Her revenue for a month - Her explicit cost per month - Her implicit cost ( opportunity cost) per month = $450,000 - $150,000 - $60,000 = $240,000.

b)

Per week, the firm TVC, TFC and TC is calculated as below:

Weekly TVC = Raw material cost = Raw material cost per unit * Unit produced per one week = 10 * 500 = $5,000;

Weekly TFC = Weekly factory rent + Weekly employee costs = 2,250 + Number of employees hired * Cost of hourly wage * Number of working hours per week = 2,250 + 20 * 15 * 40 = $14,250;

Weekly TC =  Weekly TVC + Weekly TFC = 5,000 + 14,250 = $19,250.

c)

Assume a 30-day per month basis for calculation.

Her revenue for a month = Number of items made per day * 30 * Selling price per unit = 1,000 * 30 * 15 = $450,000

Her explicit cost per month is given at $150,000

=> Her accounting profit per month = Her revenue for a month - Her explicit cost per month= $450,000 - $150,000 = $300,000.