Question

Joaquin quit his job at Canadian Tire where he earned $28,000 a year. He cashed in $30,000 in corporate bonds that earned 10% interest annually to buy a mini-bus. Joaquin has decided to buy the mini-bus and set up a commuter service between Delta and Vancouver. There are 200 people who will pay $800 a year each for the commuter service; $650 from each person goes for gas, maintenance, insurance, depreciation, etc.

a) What are Joaquin's total revenues?
b) What are Joaquin's explicit costs?
c) What is Joaquin's accounting profit?
d) List two important implicit costs that Joaquin has not included.
e) What is Joaquin's pure economic profit (loss)? What actions should Joacquin take based on his pure economic profit (loss)?

Answer 1

Joaquin total revenues are, the interest he earned from corporate bonds i.e 10% of $30000 =$3000 and from computer service he earned I.e $(200*800)= $160000

= $30000. So his total revenur is $(160000+3000)= $163000

b. Explicit cost is the cost that directly pay to persons or institutions who are involved in the business. Here Joaquin explicit costs are cost for gas because it is material cost and cost for depreciation because it is capitca cost.

C. Profit = TR - TC.

here TR= $163000 and TC =$ (200* 650)=$130000

i.e profit = $(163000-130000) =$ 33000.

D. Joaquin has not included two implicit costs are insurance and maintenance.