Exercise
Jaynet spends $30,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm- one offer was for $110,000 per year, and the other was for $80,000. However, she turned both jobs down to continue a painting career. If Jaynet sells 25 paintings per year at a price of $8,000 each:
a. What are her accounting profits?
Accounting profits are equal to the total amount of money taken in sales, income or/ and revenues minus the dollar cost of production.
Sales (25 x $8,000) ----------------------------------------------- $200,000.00
Costs of supplies and storage ------------------------------------ $ 30,000.00 Accounting profits ------------------------------------- $170,000.00
b. What are her economic profits? Economic profits are equal to the total revenue minus explicit costs and the cost of opportunity. In this case we have two scenarios for the cost of opportunity.
Job offer 1
Sales (25 x $8,000) ----------------------------------------------- $200,000.00
Costs of supplies and storage ------------------------------------ $ 30,000.00
Cost of opportunity Job offer ------------------------------------- $110,000.00 Economic profits ---------------------------------------- $ 60,000.00
Job offer 2
Sales (25 x $8,000) ----------------------------------------------- $200,000.00
Costs of supplies and storage ------------------------------------ $ 30,000.00
Cost of opportunity Job offer ------------------------------------- $ 80,000.00 Economic profits ---------------------------------------- $ 90,000.00
Week 1 Chapter 1: The Fundamentals of Managerial Economics
For this week read Chapter 1 and the Headline: Amcott Loses $3.5 Million: Manager Fired.
Answer the following questions:
Question 1. Page 27
Southwest Airlines begins a “bags Fly Free” campaign, charging no fees for a first and second checked bag. Does this situation best represent
a) Producer-producer rivalry?
b)
a. What are her accounting profits?
Accounting profits are equal to the total amount of money taken in sales, income or/ and revenues minus the dollar cost of production.
Sales (25 x $8,000) ----------------------------------------------- $200,000.00
Costs of supplies and storage ------------------------------------ $ 30,000.00 Accounting profits ------------------------------------- $170,000.00
b. What are her economic profits? Economic profits are equal to the total revenue minus explicit costs and the cost of opportunity. In this case we have two scenarios for the cost of opportunity.
Job offer 1
Sales (25 x $8,000) ----------------------------------------------- $200,000.00
Costs of supplies and storage ------------------------------------ $ 30,000.00
Cost of opportunity Job offer ------------------------------------- $110,000.00 Economic profits ---------------------------------------- $ 60,000.00
Job offer 2
Sales (25 x $8,000) ----------------------------------------------- $200,000.00
Costs of supplies and storage ------------------------------------ $ 30,000.00
Cost of opportunity Job offer ------------------------------------- $ 80,000.00 Economic profits ---------------------------------------- $ 90,000.00
Week 1 Chapter 1: The Fundamentals of Managerial Economics
For this week read Chapter 1 and the Headline: Amcott Loses $3.5 Million: Manager Fired.
Answer the following questions:
Question 1. Page 27
Southwest Airlines begins a “bags Fly Free” campaign, charging no fees for a first and second checked bag. Does this situation best represent
a) Producer-producer rivalry?
b)