Question

1.Enrique runs a flower stall in the local shopping mall. The stall rents for $1,600 a month. Enrique buys the flowers at $2 a bunch and sells them for $3 a bunch. He'll be open seven days a week, eight hours a day, and plans to sell 100 bunches of flowers a day. He's hired Rosita to work three hours each of the five school days and eight hours each day on Saturday and Sunday. Enrique pays Rosita $6 an hour. He works at the stall whenever Rosita is not working. If Enrique didn't work at the flower stall, he'd make $10 an hour as a cook. How much accounting profit and how much economic profit does Enrique make a week

Answer 1

Answer:

Enrique

a) Accounting profit = $114

b) Economic profit (loss) = ($136)

Explanation:

a) Data and Calculations:

Monthly Rent = $1,600

Cost price of flowers = $2 per bunch

Selling price of flowers = $3 per bunch

Operations are for 7 days (8 hours daily) = 56 hours

Quantity of flowers sold per day = 100 bunches

Quantity of flowers sold per week = 700 (100 * 7)

Employee hours = 5 * 3 + 2 * 8 = 31 hours

Hours worked by Enrique = 25 (56 - 31)

Employee wages = $186 ($6 * 31)

Opportunity cost: Enrique = 25 * $10 = $250 per week

Accounting profit:

Sales revenue ($3 * 700) = $2,100

Cost of sales ($2 * 700) =     1,400

Gross profit                            $700

Expenses:

Rent ($1,600/4) =          400

Employee wages =        186   586

Accounting profit =                $114

Economic profit:

Accounting profit      $114

Opportunity cost       250

Economic loss =       $136