Question

In: Economics

Carlos lives in Philadelphia and runs a business that sells pianos. In an average year, he...

Carlos lives in Philadelphia and runs a business that sells pianos. In an average year, he receives $851,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $476,000; he also pays wages and utility bills totaling $281,000. He owns his showroom; if he chooses to rent it out, he will receive $71,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Carlos does not operate this piano business, he can work as an accountant, receive an annual salary of $34,000 with no additional monetary costs, and rent out his showroom at the $71,000 per year rate. No other costs are incurred in running this piano business.

Implicit Cost Explicit Cost
The salary Carlos could earn if he worked as an accountant
The wholesale cost for the pianos that Carlos pays the manufacturer
The rental income Carlos could receive if he chose to rent out his showroom
The wages and utility bills that Carlos pays

Complete the following table by determining Carlos’s accounting and economic profit of his piano business.

Profit (Dollars)
Accounting Profit
Economic Profit

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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