Question

The Question, I would like you to include some IMPLICIT COSTS and BENEFITS in your calculations...

The Question, I would like you to include some IMPLICIT COSTS and BENEFITS in your calculations to come up with a revised accounting profit and recommendation on whether or not to return to the factory job.

The senario, A carpenter quits his job at a furniture factory to open his own cabinetmaking business. In his first two years of operation, his sales average $100 000 and his operating costs for wood, workshop and tool rental, utilities, and miscellaneous expenses average $70 000. Now his old job at the furniture factory is again available.

Should he take it or remain in business for himself? How would you make this decision?

His average sales revenue are 100000 which is greater than the average expense (operational cost=70000). That means he is getting some benefit (accounting and economic profit=30000) from his business.

Expecting that his decision was rational, we can assume that his previous job must have a salary of less than 30000. If that is the case, he should not opt his business if his job offers him the same salary. Instead, if we assume that he did not consider his implicit cost, his salary must have been higher than 30000. In that case, if his job offers him the same salary, then the business has an economic loss and he should go back to the factory job.

Homework Answers

Answer #1

ANSWER:

First of all let me tell you with the current scenario the accounting profit will be the same that is $30,000.

it is the economic profit that will change if we include the implicit costs ( like salary foregone when not working in the factory ans the income he could have earned from renting the space he is using for making furniture).

so lets assume the salary foregone to be $20,000 ( logically it should be less then the profit he is earning from doing his own business).

the rent he could have earned from giving his space to some other firm is $15,000 per year.

so now his total implicit cost are = salary foregone + rent that he could have earned = $20,000 + $15,000 = $35,000.

now his economic profit will be = accounting profit - implicit cost = $30,000 - $35,000 = -$5,000

so he is making an economic loss and would be better off working in factory.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Definition of economic costs Andrew lives in San Diego and runs a business that sells...
1. Definition of economic costs Andrew lives in San Diego and runs a business that sells pianos. In an average year, he receives $704,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $404,000; he also pays wages and utility bills totaling $286,000. He owns his showroom; if he chooses to rent it out, he will receive $3,000 in rent per year. Assume that the value of this showroom does not depreciate over...
Examine Frank’s Motorcycle Business information when responding to questions about Ben’s business. These costs and incomes...
Examine Frank’s Motorcycle Business information when responding to questions about Ben’s business. These costs and incomes all refer to Frank’s first year of operation in business. On the first day of his first year in business, Frank withdraws $80,000 dollars from a savings account that earned 4% per year to purchase tools and equipment to start his own shop that will specialize in servicing motorcycles. Frank decides to operate his business out of a commercial property that he owns and...
Question 1 When a production facility is in production and running well, it adds a new...
Question 1 When a production facility is in production and running well, it adds a new worker. You would expect this worker to produce more than prior workers. less than prior workers. the same as prior workers. Question 2 "Fill in the blank" question: select the correct answer. When production is just beginning, more efficient use of each input can be achieved by -Select- adding new variable inputs adding new fixed inputs reducing fixed inputs reducing variable inputs Question 3...
Not so much a question but I was wondering what would be a list of 2-3...
Not so much a question but I was wondering what would be a list of 2-3 questions to ask after reading this case analysis that would be good to ask. Meaning, after reading this case analysis what questions would you want to ask for the writer? Thanks, Alex - Industry Scenario The tech industry is highly volatile at the point of time with people changing jobs every eighteen months on average. Compensation is getting higher and people are becoming tough...
Question 1 Case A Marty Ofori worked for a card company specializing in invitations and announcements....
Question 1 Case A Marty Ofori worked for a card company specializing in invitations and announcements. Every day for 25 years, he went to an office, sat at a desk, and took orders over the phone. He hated it. He was bored out of his mind. He didn’t know what to do. So he began skimming the business opportunities section of The Mirror. He wasn’t sure what he was looking for. At almost 50 years of age, he had few...
Bob, Chad and Dylan had been dreaming of this day for the past six years; ever...
Bob, Chad and Dylan had been dreaming of this day for the past six years; ever since they first met in an introductory economics course in college. For several years they had been pooling their money and buying Arizona Lottery tickets dreaming that one day they would win big. They realized that the lottery was considered by many to be a voluntary tax on the statistically challenged. But miraculously they now sat at their favorite local �watering hole� holding the...
Discussion Question: What would you do case? (CH10) DUE 5/6 The words “Cessna Skyhawk” have special...
Discussion Question: What would you do case? (CH10) DUE 5/6 The words “Cessna Skyhawk” have special meaning for anyone who has ever wanted to learn to fly. At 27 feet long and 8 feet tall, with a 36-foot wingspan, a 140 mph cruising speed, and room for two adults and their luggage, more people have learned to fly with a Cessna Skyhawk than with any other plane in aviation history. In fact, the Cessna Skyhawk is the best-selling plane of...
In narrative essay format, I want you to address a business/organization case study using multiple concepts...
In narrative essay format, I want you to address a business/organization case study using multiple concepts from class. The case question and case text begin on page 5 of this document. You need to demonstrate their best understanding of management and organizational behavior theory, and the application of those ideas to improve the understanding of various issues. You need to clearly identify at least 3 distinct, substantive issues. For each issue you need to 1), identify evidence from the case...
YOU have graduated from Deakin and have joined a major financial advice firm in the city....
YOU have graduated from Deakin and have joined a major financial advice firm in the city. The boutique firm is known for its famous clients, many of whom are celebrities and their respective family and friends. As a young graduate you went through a difficult selection criterion to successfully fill a very sought-after and competitive position as an adviser. Don Richardson is the executive and top senior adviser at the firm and takes time to personally mentor and train new...
Scenario Pigs R Us is a second generation, family-owned Richmond-based company with about 400 employees. It...
Scenario Pigs R Us is a second generation, family-owned Richmond-based company with about 400 employees. It slaughters, manufactures, and sells pork food products.  Pigs R Us (PRU) is a low-tech, hands-on, “bricks and mortar” type of company with solid brand recognition, an impeccable reputation for high quality and ethical standards. The processes used in manufacturing are with the highest ISO20002 standards, and the plant is maintained immaculately. The personnel are comprised of an older work force (average employee age is late...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT