aA business owner makes 1000 items a day Each day she spends

a.)A business owner makes 1000 items a day. Each day she spends 8 hours producing those items. If hired, elsewhere she could have earned $250 an hour. The item sells for $15 each. Production occurs seven days a week. If the explicit costs total $150,000 per month, what is her economic profit?

b.) A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly and they costs $10 for every unit produced.  The weekly cost of the rent payment for the factory is $2,250. Calculate: TVC, TFC, and TC.

c.) Jane makes 1000 items a day. Each day she spends 8 hours producing those items. If hired elsewhere she could have earned $250 an hour. The item sells for $15 each. Production occurs seven days a week. If the explicit costs total $150,000 per month, what is her accounting profit?

Solution

(a)

Implicit cost = Earning foregone = $250 x 8 = $2,000 per day

Total earning foregone in 4 weeks = $2,000 x 7 x 4 = $56,000

Economic cost = Explicit cost + Implicit cost = $(150,000 + 56,000) = $206,000

Revenue = 1,000 x 7 x 4 x $15 = $420,000

Economic profit = Revenue - Economic cost = $(420,000 - 206,000) = $214,000

(b)

Labor cost = 20 x 40 x $15 = $12,000

Material cost = 500 x $10 = $5,000

Total variable cost, TVC = Labor + Material = $(12,000 + 5,000) = $17,000

TFC = Monthly rent = $2,250

TC = TVC + TFC = $(17,000 + 2,250) = $19,250

(c)

Revenue = 1,000 x 7 x 4 x $15 = $420,000

Accounting profit = Revenue - Explicit cost = $(420,000 - 150,000) = $270,000