Rajiv lives in Denver and runs a business that sells boats. In an average year, he receives $842,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $452,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $38,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Rajiv does not operate this boat business, he can work as an accountant, receive an annual salary of $48,000 with no additional monetary costs, and rent out his showroom at the $38,000 per year rate. No other costs are incurred in running this boat business. Identify each of Rajiv's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The wholesale cost for the boats that Rajiv pays the manufacturer The wages and utility bills that Rajiv pays The rental income Rajiv could receive if he chose to rent out his showroom The salary Rajiv could earn if he worked as an accountant Complete the following table by determining Rajiv's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit
Rajiv lives in Denver and runs a business that sells boats. In an average year, he receives $842,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $452,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $38,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Rajiv does not operate this boat business, he can work as an accountant, receive an annual salary of $48,000 with no additional monetary costs, and rent out his showroom at the $38,000 per year rate. No other costs are incurred in running this boat business. Identify each of Rajiv's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The wholesale cost for the boats that Rajiv pays the manufacturer The wages and utility bills that Rajiv pays The rental income Rajiv could receive if he chose to rent out his showroom The salary Rajiv could earn if he worked as an accountant Complete the following table by determining Rajiv's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit
Chapter32: The Land Market And Natural Resources
Section: Chapter Questions
Problem 4E
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I am having trouble understanding how to calculate the economic and accounting profits for this question. I know that Accounting profit is Revenue - all costs, but based on how this question is phrased, it isn't clear exactly what is being considered revenues and costs incurred. If you could help me understand these calcualations better, that would be great! Thanks!
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