Learning Act 2-8
Learning activity II ch 8-U4
Exercise 1: Anthony Figueroa is a CPA, who works for an accounting consulting firm. His annual salary income is $70,000. Anthony is considering opening up his own consulting firm. He estimates that the annual rent for an office would cost him $20,000; a secretary would cost $24,000 per year. If he would rent office equipment, he would have to pay $11,000 per year. The purchase of required supplies, payment of electricity bills, water and telephone bills, would cost approximately $5,000 a year. Anthony estimates that the revenues that he would generate with consulting services would be $120,000 a year.
a. Explicit cost = Accounting cost
Rent $20,000
Sal. Secretary 24,000
Off. Equipment 11,000
Utilities 5,000
Total. Ex. Cost $60,000
b. The forgone salary is $70,000.
c. Economic profit = TR – (Explicit cost + Implicit cost)
Economic profit = 120,000 – (60,000+70,000)
Economic profit = -10,000
d. Because of the negative result, Anthony should work for someone else, he should not run his own business.
Exercise 2: Suppose that the economist of Corporation XYZ estimates the following long run cost function for a product M that the company produces and sells.
TC = 5Q2 + 10Q +180 The market price for product M is fixed at P = $70
a. TFC = 180
b. TVC = 5Q² + 10Q
c. ATC = MC
ATC = TC/Q
ATC = (5Q² = 10Q = 180) Q
ATC = 5Q +10 +180/Q
MC = 10Q + 10
ATC = MC
5Q + 10 +180/Q = 10Q + 10
-5Q + 180Q = 0 Q Q
-5Q² + 180 = 0
-5Q² = -180
√Q² =√36
Q = 6 units
d. P = MC
70 = 10Q +10
60 = 10Q
Q = 6
Profits = TR –TC
Profits = 70(6) – (5x6² + 10x6 +180) = 0
Normal profits, because the profits equals 0.
P 8-3 Incremental Cost. South Park Software, Inc. produces innovative interior decorating software that it sells to design studios, home furnishing stores, and so on. The yearly volume of output is 15,000 units. Selling price and costs per unit are as follows:
Exercise 1: Anthony Figueroa is a CPA, who works for an accounting consulting firm. His annual salary income is $70,000. Anthony is considering opening up his own consulting firm. He estimates that the annual rent for an office would cost him $20,000; a secretary would cost $24,000 per year. If he would rent office equipment, he would have to pay $11,000 per year. The purchase of required supplies, payment of electricity bills, water and telephone bills, would cost approximately $5,000 a year. Anthony estimates that the revenues that he would generate with consulting services would be $120,000 a year.
a. Explicit cost = Accounting cost
Rent $20,000
Sal. Secretary 24,000
Off. Equipment 11,000
Utilities 5,000
Total. Ex. Cost $60,000
b. The forgone salary is $70,000.
c. Economic profit = TR – (Explicit cost + Implicit cost)
Economic profit = 120,000 – (60,000+70,000)
Economic profit = -10,000
d. Because of the negative result, Anthony should work for someone else, he should not run his own business.
Exercise 2: Suppose that the economist of Corporation XYZ estimates the following long run cost function for a product M that the company produces and sells.
TC = 5Q2 + 10Q +180 The market price for product M is fixed at P = $70
a. TFC = 180
b. TVC = 5Q² + 10Q
c. ATC = MC
ATC = TC/Q
ATC = (5Q² = 10Q = 180) Q
ATC = 5Q +10 +180/Q
MC = 10Q + 10
ATC = MC
5Q + 10 +180/Q = 10Q + 10
-5Q + 180Q = 0 Q Q
-5Q² + 180 = 0
-5Q² = -180
√Q² =√36
Q = 6 units
d. P = MC
70 = 10Q +10
60 = 10Q
Q = 6
Profits = TR –TC
Profits = 70(6) – (5x6² + 10x6 +180) = 0
Normal profits, because the profits equals 0.
P 8-3 Incremental Cost. South Park Software, Inc. produces innovative interior decorating software that it sells to design studios, home furnishing stores, and so on. The yearly volume of output is 15,000 units. Selling price and costs per unit are as follows: