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Charles lives in Houston and runs a business that sells boats. In an average year, he receives $851,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $476,000; he also pays wages and utility bills totaling $281,000. He owns his showroom; if he chooses to rent it out, he will receive $71,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Charles does not operate this boat business, he can work as an accountant, receive an annual salary of $34,000 with no additional monetary costs, and rent out his showroom at the $71,000 per year rate. No other costs are incurred in running this boat business.
Implicit Cost
Explicit Cost
The salary Bob could earn if he worked as an accountant
The wholesale cost for the boats that Bob pays the manufacturer
The rental income Bob could receive if he chose to rent out his showroom
The wages and utility bills that Bob pays
Complete the following table by determining Bob's accounting and economic profit of his boat business.
Profit
(Dollars)
Accounting Profit
Economic Profit

Sagot :

Answer and Explanation:

The classification is as follows;

When bob worked as an accountant so he could earn the salary so this represent the implicit cost

The cost for the boats that bob paid to the manufactured represent the explicit cost

The rental income that received by bob represent the implicit cost

The wages and utility bills paid by bob represent the explicit cost

The Accounting profit is

= Revenue - explicit cost

= $851,000 - $476,000 - $281,000

= $94000

And, the Economic profit  is

= Accounting profit - implicit cost

= $94,000 - $71,000 - $34,000

= -$11,000

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