Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 7: Q 2. (page 183)

Continuing from Exercise 7.1, the firm’s factory sits on land owned by the firm that it could rent for$30,000per year. What was the firm’s economic profit last year?

Short Answer

Expert verified

The firm's economic profit was$20,000last year.

Step by step solution

01

Step 1. Given information

Salesrevenue:$1MillionLabor:$600,000Capital:$150,000Materials:$200,000Rent:$30,000

02

Step 2. calculation

Economic profit = Accounting profit-implicit cost

=$50,000-$30,000=$20,000.

So, The Economic profit of the firm last year is$20,000

03

Final answer

The Economic profit of the firm last year is$20000

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Based on your answers to the WipeOut Ski Company in Exercise 7.3, now imagine a situation where the firm produces a quantity of 5units that it sells for a price of $25each.

a. What will be the company’s profits or losses?

b. How can you tell at a glance whether the company is making or losing money at this price by looking at average cost?

c. At the given quantity and price, is the marginal unit produced adding to profits?

Small “Mom and Pop firms,” like inner city grocery stores, sometimes exist even though they do not earn economic profits. How can you explain this?

What shapes would you generally expect a total product curve and a marginal product curve to have?

What is a production technology?

Average cost curves (except for average fixed cost) tend to be U-shaped, decreasing and then increasing. Marginal cost curves have the same shape, though this may be harder to see since most of the marginal cost curve is increasing. Why do you think that average and marginal cost curves have the same general shape?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free