Question

In: Economics

please urgent!! Dale quit his $60,000 teaching job at the Wonderful College and started his own...

please urgent!!

Dale quit his $60,000 teaching job at the Wonderful College and started his own consulting firm last year. He figured that since he doesn’t have to pay himself a salary and since he could use an office with a market rental value of $6,000 in a building which he owns, he could save a lot of money and have a profitable business. His last year’s revenues & expenses are listed below:

a. Calculate Dale’s accounting profit. (4pts)

b. Is Dale an Accountant or an economist? Why? Prove your answer numerically & provide complete explanation & interpretation. What would be your advice to him?

Total consulting revenues: $70,000 Advertising: $3,000 Insurance: $2,000 Secretary’s salary: $12,000 Miscellaneous expenses: $3,000 All other expenses: $4,000

Solutions

Expert Solution

Given:
Dale's total revenue = $70,000

Dale's explicit expenditure = $24,000
   (Advertising: $3,000 Insurance: $2,000 Secretary’s salary: $12,000 Miscellaneous expenses: $3,000 All other expenses: $4,000 = $24,000)

Dal's implicit expenditure = $66,000
( $60,000 teaching job at the Wonderful College+ market rental value of $6,000 in a building which he owns = $66,000)

a. Dale's accounting profit = $46,000
Accounting profit = Revenue - Explicit expenditure = 70,000 - 24,000 = 46,000.

b. Dale is an accountant who considers only accounting profit, and not economic profit. He has not considered the opportunity cost of starting his own business. If he considers the opportunity cost, he will realize that he is facing economic loss.

This is because, his accounting profit = $46,000.
His implicit expenses (opportinity cost) = $66,000
Therefore, Dale incurs an economic loss of $20,000 (46,000 66,000 = -20,000)
Economic profit = Revenue - (Explicit cost + implicit cost)

Advice for Dale would be that he should go back to Wonderful College and not start this business. He would be sainvg himself from incurring an economic loss of $20,000.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

In 2009, David Tucker quit his job at a large beer company to start his own...
In 2009, David Tucker quit his job at a large beer company to start his own brewery, Tempe Microbrewery (TM). His family supported his decision and invested in the business along with David. TM began operations on January 10, 2010 and now produces four labels of specialty beers (Saguaro pale Ale, Bisbee Bock, Ocotillo Amber Pilsner, and Sedona Stout). An explanation of the beer-making process is shown in Appendix A. In much of the United Sates (including Arizona), beer is...
In 2009, David Tucker quit his job at a large beer company to start his own...
In 2009, David Tucker quit his job at a large beer company to start his own brewery, Arizona Microbrewery, Inc. (AMI). His family supported his decision and invested in the business along with David. AMI began operations on January 10, 2010 and now produces four labels of specialty beers (Saguaro Pale Ale, Bisbee Bock, Ocotillo Amber Pilsner, and Sedona Stout).   In much of the United States (including Arizona), beer is sold in a “three-tier” system. Under this system, beer is...
In 2009, David Tucker quit his job at a large beer company to start his own...
In 2009, David Tucker quit his job at a large beer company to start his own brewery, Tempe Microbrewery (TM). His family supported his decision and invested in the business along with David. TM began operations on January 10, 2010 and now produces four labels of specialty beers (Saguaro pale Ale, Bisbee Bock, Ocotillo Amber Pilsner, and Sedona Stout). An explanation of the beer-making process is shown in Appendix A. In much of the United Sates (including Arizona), beer is...
In 2009, David Tucker quit his job at a large beer company to start his own...
In 2009, David Tucker quit his job at a large beer company to start his own brewery, Tempe Microbrewery (TM). His family supported his decision and invested in the business along with David. TM began operations on January 10, 2010 and now produces four labels of specialty beers (Saguaro pale Ale, Bisbee Bock, Ocotillo Amber Pilsner, and Sedona Stout).   In much of the United Sates (including Arizona), beer is sold in a “three-tier” system. Under this system, beer is manufactured...
Q2: Frank is thinking about quitting his teaching job, which pays $75,000 per year, to own...
Q2: Frank is thinking about quitting his teaching job, which pays $75,000 per year, to own and operate his own food truck business. If he starts the business, he will spend $90,000 to purchase a truck and appliances (which he feels is a better option than renting the physical capital). This amount of money would come from two sources: $35,000 would be borrowed from a bank at an interest rate of 4% per year and $55,000 would come from Frank’s...
Mr. Johnson, much to his parents’ dismay, has decided to quit college and to become a...
Mr. Johnson, much to his parents’ dismay, has decided to quit college and to become a professional skateboarder. In order to bring attention to himself, Mr. Johnson decided to film himself performing a trick and then to submit it to a cable channel program featuring various ‘daredevils’. Mr. Johnson planned to ride a stair railing at the local strip mall. Unfortunately the trick failed and Mr. Johnson suffered fractures in his frontal bone as well as several facial bones making...
A senior executive of a public sector company recently quit his job under the VRS with...
A senior executive of a public sector company recently quit his job under the VRS with a hefty packet of INR 1 Crore. Ms. Dhana-chor Chit Fund Company has offered the following investment scheme for the benefit of such retired people: "Invest a certain sum (in lakhs of rupees) in any month; invest half of that amount in the next month. In the subsequent month, one would get twice the amount invested originally in the first month”. This scheme is...
A senior executive of a public sector company recently quit his job under the VRS with...
A senior executive of a public sector company recently quit his job under the VRS with a hefty packet of INR 1 Crore. Ms. Dhana-chor Chit Fund Company has offered the following investment scheme for the benefit of such retired people: "Invest a certain sum (in lakhs of rupees) in any month; invest half of that amount in the next month. In the subsequent month, one would get twice the amount invested originally in the first month”. This scheme is...
A senior executive of a public sector company recently quit his job under the VRS with...
A senior executive of a public sector company recently quit his job under the VRS with a hefty packet of INR 1 Crore. Ms. Dhana-chor Chit Fund Company has offered the following investment scheme for the benefit of such retired people: "Invest a certain sum (in lakhs of rupees) in any month; invest half of that amount in the next month. In the subsequent month, one would get twice the amount invested originally in the first month”. This scheme is...
Ralph wants to quit his job and move to Hawaii on December 25, 2015. Once there,...
Ralph wants to quit his job and move to Hawaii on December 25, 2015. Once there, he anticipates that he will need to make annual withdrawals of 14500 dollars (starting on December 25, 2016) to supplement his income from working as a cabana boy, and he wants the money to last 10 years (i.e. he'll make 10 withdrawals total). His plan is to make annual deposits, starting on December 25, 2000 and ending on December 25, 2015, into an account...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT