Question

3)

Cindy is trying to decide between two options. She can either start up a telephone psychic hotline using her $300,000 in savings to purchase equipment or take a job at an advertising agency for $60,000/year. If she takes the job she will put her $300,000 savings into the market and earn a 10% annual rate. If she starts up the psychic hotline she expects to earn $310,000 a year in revenue while having annual explicit costs of $220,000. What is the economic profit per year of starting up the telephone psychic hotline?

Group of answer choices

a $30,000

b $180,000

c $60,000

d $90,000

e $0

4)

When producing its 5th unit a firm's total variable costs increased from 300 to 340. If a firm is facing increasing marginal returns, which answer could be the total variable cost of producing 6 units?

Group of answer choices

a 320

b 400

c 360

d 380

Answer 1

Ans 3) If Cindy starts telephone psychic hotline then, she has to use up her savings of $300,000.

Earnings per year = $310,000/year

Explicit costs = $220,000/year

Implicit costs = Opportunity cost which is lost by not taking up the job = ($60,000 + $30,000)/year =$90,000/year

Thus, economic profit per year of starting up a telephone psychic hotline = $310,000 - $220,000 - $90,000 = $0

e) $0

Ans 4) c) 360

The total variable cost will increase but the marginal increase will be lesser due to increasing marginal returns.