Managerial Economics.
Benedictine University
Managerial Economics
Individual Work-1
Unit Tutor: Char Lee Racine
Student name：Gu Haizhen (Vivian)
Date of issue: September 6, 2010
Date of submission: September 13, 2010
Contents
I. 3
II. 4
III. 7
VI. 9
Technical problems
I.
During a year of operation, a firm collects $175,000 in revenue and spends $80,000 on raw materials, labor expense, utilities, and rent. The owners of the firm have provided $500,000 of their own money to the firm instead of investing the money and earning a 14 percent annual rate of return.
a. The explicit costs of the firm are $80,000. The implicit costs are $70,000. Total economic cost is $150,000.
b. The firm earns economic profit of $25,000.
c. The firm’s accounting profit is $95,000.
d. If the owners could earn 20 percent annually on the money they have invested in the firm, the economic profit of the firm would be $ - 5,000 (when revenue is $175,000).
a. Explicit cost (market – supplied resources) = $80,000 Implicit cost (owner – supplied resources) = 50,000 * 14% = $70,000 Total economic cost = explicit cost + implicit cost = $150,000
b. Economic profit = total revenue – total economic cost = total revenue – explicit cost – implicit cost = 175,000 – 150, 000 = $25,000
c. Accounting profit = total revenue – explicit cost = 175,000 – 80,000 = $95,000
d. Economic profit = total revenue – total economic cost = total revenue – explicit cost – implicit cost = 175,000 – 80,000 – 500,000 * 20% =$ - 5,000
Applied problems
II.
At the beginning of the year, an audio engineer quit his job and gave up a salary of $175,000 per year in order to start his own business, Sound Devices, Inc. The new company builds, installs, and maintains custom audio equipment for business that requires high-quality audio systems. A
Managerial Economics
Individual Work-1
Unit Tutor: Char Lee Racine
Student name：Gu Haizhen (Vivian)
Date of issue: September 6, 2010
Date of submission: September 13, 2010
Contents
I. 3
II. 4
III. 7
VI. 9
Technical problems
I.
During a year of operation, a firm collects $175,000 in revenue and spends $80,000 on raw materials, labor expense, utilities, and rent. The owners of the firm have provided $500,000 of their own money to the firm instead of investing the money and earning a 14 percent annual rate of return.
a. The explicit costs of the firm are $80,000. The implicit costs are $70,000. Total economic cost is $150,000.
b. The firm earns economic profit of $25,000.
c. The firm’s accounting profit is $95,000.
d. If the owners could earn 20 percent annually on the money they have invested in the firm, the economic profit of the firm would be $ - 5,000 (when revenue is $175,000).
a. Explicit cost (market – supplied resources) = $80,000 Implicit cost (owner – supplied resources) = 50,000 * 14% = $70,000 Total economic cost = explicit cost + implicit cost = $150,000
b. Economic profit = total revenue – total economic cost = total revenue – explicit cost – implicit cost = 175,000 – 150, 000 = $25,000
c. Accounting profit = total revenue – explicit cost = 175,000 – 80,000 = $95,000
d. Economic profit = total revenue – total economic cost = total revenue – explicit cost – implicit cost = 175,000 – 80,000 – 500,000 * 20% =$ - 5,000
Applied problems
II.
At the beginning of the year, an audio engineer quit his job and gave up a salary of $175,000 per year in order to start his own business, Sound Devices, Inc. The new company builds, installs, and maintains custom audio equipment for business that requires high-quality audio systems. A