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5. Sally is considering opening her own beauty salon. She anticipates the following costs per year:

Furniture:

$20,000

Equipment:

$14,000

Rent:

$12,000

Coloring products:

$6,000

Styling products:

$4,000

Sally is withdrawing $34,000 from her savings account that pays 4% interest/year to purchase the furniture and equipment; she will quit her current job that pays $25,000 per year. She expects total revenues from the new business in the first year to be $70,000. Calculate the following:

a. Explicit cost (list by item).

b. Implicit cost (list by item).

c. Accounting profit.

d. Economic profit.

e. Given this first-year information only, should Sally open a salon?5. Sally is considering opening her own beauty salon. She anticipates the following costs per year:

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Paramjeet Chawla
Paramjeet ChawlaLv8
28 Sep 2019

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Related questions

A. Mary Graham has worked as a real estate agent for Piedmont Properties for 15 years. Her annual income is approximately $100,000 per year. Mary is considering establishing her own real estate agency. She expects to generate revenues during the first year of $2 million. Salaries paid to her employees are expected to total $1.5 million. Operating expenses (i.e. rent, supplies, and utility services) are expected to total $250,000. To begin the business, Mary must borrow $500,000 from her bank at an interest rate of 15%. Capital equipment will cost Mary $50,000. At the end of one year, the value of this equipment will be $30,000, even though the depreciation for tax purposes is only $5,000 during the first year.

(a) Determine the accounting profit for this venture. Show your calculations.

(b) Determine the economic profit for this venture. Show your calculations.

(c) Which of the costs of this firm are explicit, and which are implicit costs. 

B. A local restaurant owner recently purchased a liquor license issued by the state for $90,000. This license can be transferred or sold to another party. If the owner returns the license to the state only $75,000 is refundable. After selling alcoholic beverages for about one year, the restaurant owner realized that she was losing dinner customers and that her profitable restaurant business was turning into a noisy, unprofitable bar. Subsequently, she spent about $8,000 placing advertisements, in various newspapers and restaurant magazines, across the state offering to sell the license for $80,000. After a long wait, she finally received one offer to purchase her license for $77,000. Carefully identifying the sunk costs, would you recommend that she accept the $77,000 offer?

5. Economic profit is equal to 
 
a. total revenue minus the explicit cost of producing goods and services.
b. total revenue minus the opportunity cost of producing goods and services.
c. total revenue minus the accounting cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.
 
6. Accounting profit is equal to 
 
a. marginal revenue minus marginal cost.
b. total revenue minus the explicit cost of producing goods and services.
c. total revenue minus the opportunity cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.
 
7. Economic profit
 
a. will never exceed the accounting profit.
b. is most often equal to accounting profit
c. is always at least as large as accounting profit.
d. is a less complete measure of profitability than accounting profit
 
8. Which of the following expressions is correct?
 
a. accounting profit = total revenue - explicit costs
b. economic profit = total revenue - implicit costs
c. economic profit = total revenue - explicit costs
d. Both a and b are correct
 
Scenario 13-2:
 
Zach took $400,000 out of the bank and used it to start his new cookie business. The bank account pays 3% interest per year. During the first year of his business, Zach sold 6,000 boxes of cookies for $2.50. Also during the first year, the cookie business incurred costs that required outlays of money amounting to $9,000.
 
9. Zach's accounting profit for the year was
 
a. $-494,000
b. $-6,000
c. $6,000
d. $12,000
 
10. Zach's economic profit for the year was
a. S-506,000
b· $-6,000
c. $3,000
d. $6,000.
 
Scenario 14-1:
 
As part of an estate settlement, Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business; her salary at Lucky.Com Inc. was $75,000 per 
 
11. At the end of the first year of operating her new business, Mary's accountant reported an accounting profit of $150,000. What was Mary's economic profit?
 
a. $25,000 loss
b.$50,000 loss
c. $25,000 profit
d. $150,000 profit

 

 

Paul's accountant will most likely includes which of the followingcosts on his financial statements?Paul owns a car wash.
A) dividends Paul’s money was earning in the stock market beforePaul sold his stock and bought a car wash
B) All of the given answers are correct.
C) the cost of cleaning supplies
D) wages Paul could earn washing windows
2.
Farmer Jack decided to use his land to grow corn rather than use itto grow vegetables, the amount of money that he gave up by notgrowing vegetable is
A) forgone accounting profit.
B) an explicit cost.
C) an implicit cost.
D) an accounting cost
3.
Intel sold 2 million chips at a price of $10 per chip. For lastyear, the firm’s
A) explicit costs amounted to $20 million.
B) accounting profit amounted to $20 million.
C) economic profit amounted to $20 million.
D) total revenue amounted to $20 million.
4.
Mandy earned $40,000 per year in her Sales Manager job. She quither job in order to start her own catering business. To buy thenecessary equipment, she withdrew $20,000 from her savings, (whichpaid 3 percent interest) and borrowed $30,000 from her uncle, whomshe pays 3 percent interest per year. Last year she paid $25,000for ingredients and had revenue of $60,000. She asked Louis theaccountant and Greg the economist to calculate her profit forher.
A) Louis says her profit is $35,000 and Greg says she lost$5,000.
B) Louis says her profit is $34,100 and Greg says she lost$6,500.
C) Louis says her profit is $33,500 and Greg says her profit is33,500.
D) Louis says her profit is $34,100 and Greg says her profit is$6,500.
5.
In the short run
A) The firm can vary the size of its factory, but not the number ofworkers it employs.
B) The firm can vary neither the size of its factory nor the numberof workers it employs.
C) The firm can vary both the size of its factory and the number ofworkers it employs.
D) The firm can vary the number of workers it employs, but not thesize of its factory.
6.
If a firm’s production function is shown on a graph and the numberof workers hired is the only variable input, then

A) total cost is measured on the horizontal axis and the number ofworkers is measured on the vertical axis.
B) the number of workers is measured on the horizontal axis and thequantity of output is measured on the vertical axis.
C) the number of workers is measured on the horizontal axis andvariable cost is measured on the vertical axis.
D) the number of workers is measured on the horizontal axis andprofit is measured on the vertical axis.
7.
marginal cost is
A) The amount by which total cost rises when the firm produces oneadditional unit of output.
B) is calculated the same way as average cost
C) total cost minus fixed cost.
D) The amount of total cost divided by units of output.
8.
If a firm is at the efficient scale of output it means that thequantity of output is such that it
A) maximizes marginal product.
B) maximizes profit.
C) minimizes average total cost(ATC) and average variable cost isequal to ATC
D) minimizes average total cost (ATC)and marginal cost is equal tothe ATC
9.
When marginal cost is less than average total cost,
A) average total cost is rising.
B) average variable cost must be falling.
C) average total cost is falling.
D) marginal cost must be falling.
10.
Regarding a the firm's cost of production,which of the followingstatements is false?
A) Marginal cost is independent of fixed costs.
B) In the long run, there are no fixed costs.
C) Diminishing marginal product explains increasing marginalcost.
D) Economies of scale is a short-run concept.

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