Answer:
A. Total revenue=$800
B. Total cost=$820
C. The economic loss=$20
D. Resources will definitely flow away from the bakery since the business is making a loss, it would be prudent for the resources to be utilized in alternative endeavors that might register profits.
Explanation:
A.
<em>Step 1: Determine firm's total revenue</em>
The total revenue can be defined as the summation of all income that is generated from the sales without accounting for the expenditures. The total revenue can be expressed as shown below;
T=U×N
where;
T=total revenue
U=selling price per unit
N=number of units sold
In our case;
T=unknown, to be determined
U=$1 per unit
N=800 loaves
Replacing;
T=(800×1)=$800
Total revenue=$800
B.
<em>Step 2: Determine the total cost</em>
The total cost is the amount of expenditure that is used in the production of a good or service. The total cost can be expressed as shown below;
C=(Lo×N1)+(La×N2)+(Ca×N3)+(E×N4)
where;
C=total cost
Lo=labor cost per unit
N1=number of units of labor
La=land cost per unit
N2=number of units of land
Ca=capital cost per unit
N3=number of units of capital
E=entrepreneurial cost per unit
N4=number of units of entrepreneurial ability
In our case;
C=unknown, to be determined
Lo=$40
N1=6
La=$60
N2=5
Ca=$60
N3=4
E=$20
N4=2
Substituting;
C=(40×6)+(60×5)+(60×4)+(20×2)=(240+300+240+40)=$820
Total cost=$820
C.
<em>Step 3: Determine the economic profit or loss</em>
The economic profit is a measure of how a company is doing in terms of profits. It usually determines whether the endeavor is financially beneficial or if it causes losses. The economic profit is mostly used to decide whether or not to continue with production. The economic profit or loss can be expressed as shown below;
E=T-C
where;
E=economic profit or loss
T=total revenue
C=total cost
In our case;
E=unknown, to be determined
T=$800
C=$820
Substituting;
E=800-820=-$20
Economic profit/loss=-$20
The economic loss=$20
D.
Resources will definitely flow away from the bakery since the business is making a loss, it would be prudent for the resources to be utilized in alternative endeavors that might register profits.
