Business, 09.03.2020 22:48 Taylor1402
Sam lives in San Diego and runs a business that sells boats. In an average year, he receives $704,000 from selling boats. 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 the year. Also, if Sam does not operate this boat business, he can work as an accountant, receive an annual salary of $20,000 with no additional monetary costs, and rent out his showroom at the $3,000 per year rate. No other costs are incurred in running this boat business.
1) Identify each of Sam’s costs in the following table as either an implicit cost or an explicit cost of selling boats.
A. The wholesale cost for the boats that Sam pays the manufacturer
B. The rental income Sam could receive if he chose to rent out his showroom
C. The wages and utility bills that Sam pays
D. The salary Sam could earn if he worked as an accountant
2) Complete the following table by determining Sam’s accounting and economic profit of his boat business.
Profit
(Dollars)
Accounting Profit
Economic Profit
Answers: 2
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