2 XIr. Dixon owns a small restaurant and has the following statement of reven Re

Question

2 XIr. Dixon owns a small restaurant and has the following statement of reven Revenues $25,000 6,000 $250,000 Supplies | Electricity Employee salaries57.0 Mr. Dixon's salary +575,000 $80,000 Mr. Dixon always has the option of closing down the restaurant and renting out the land for $100,000. (1). (2 pts) Calculate the accounting cost of running the restaurant. (2). Mr. Dixon has a job offer from a nearby restaurant at $85,000. (2a). (2 pts) Calculate the economic cost of running the restaurant. (2b). (4 pts) Calculate the economic profit of the restaurant? Should Mr. Dixon shut down his shop? (3). (2 pts) The only job offer Mr. Dixon has is from a local supermarket at a salary of $55,000. Calculate the economic cost of running the restaurant.

Explanation / Answer

(1) Accounting cost of running the restaurant =Explicit cost Which includes the cost of resources hire from market

=$25000+$6000+$75000+$80000

=$186000

(2a) Economic cost of running business=Explicit cost +implicit cost(cost of resources owened

=$186000+$100000(land cost)+$85000(opportunity cost of Mr Dixon)

=$371000

2(b) Economic profit of restaurant

=Total revenue -economic cost

=$250000-$366000

=-$116000

Mr Dixon should shut down his business

(3) Economic cost when opportunity cost is $55000

$186000+$100000+$55000

$341000

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