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 |
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|
|
|
The rental income Carlos could receive if he chose to rent out
his showroom |
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The wages and utility bills that Carlos pays |
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Complete the following table by determining Carlos’s accounting
and economic profit of his piano business.
|
Profit (Dollars) |
Accounting Profit |
|
Economic Profit |
|