Question

1.Suppose you are running your own flower delivery business (called Here Comes the Bloom) and have the following financial information (per year): total revenues from sales are $260,000, labor costs are $85,000, rent is $20,000, materials are $33,000, vehicle related costs (fuel, insurance, maintenance) are $10,000 and utilities are $7,000. You own the delivery van and could rent it out for $6,000 per year if you weren’t using it to run your own business. You have a standing offer to go to work for your brother at his crystal shop (called The People’s Quartz) at a salary of $55,000 per year. If you worked for your brother, you would also have time to pursue your passion and sell the hemp bracelets you make at various craft fairs and festivals. This would bring in a profit of $9,000 per year. You do not have time for your bracelet business or to work for your brother if you are running your flower business.

a.Calculate both the accounting and economic profits from running Here Comes the Bloom.

b.Based on the calculations in part a, what should you choose to do? Explain why briefly. Give a practical interpretation of the economic profit number as if explaining to a friend that has not taken economics.

2.Suppose Debbie notices the following relationship between how many workers she hires to work on her fishing boat, and how much fish her company catches (per day):

Workers	Qty of Fish (in pounds)	Marginal Product	Total Cost	Average Total Cost	Marginal Cost
0	0
1	120
2	220
3	300
4	360
5	400

a.Use the information in the table to complete the marginal product column. Explain briefly why the marginal productivity might follow this pattern.

b.Suppose Debbie has a fixed cost of $100 per day to rent the boat and equipment. She must pay each worker $120 per day. Use this information to complete the total cost, average total cost, and marginal cost columns in the table. a. Use the information in the table to complete the marginal product column. Explain briefly why the marginal productivity might follow this pattern.

Answer 1