Problem 08-01 (Algo) Refer to the table below. The table shows the monthly econo

Question

Problem 08-01 (Algo)

Refer to the table below. The table shows the monthly economic profit of a drugstore.

$21,000

$4,000

If the owner of the drugstore hired a manager for $11 an hour to take his place, how much of a change would show up in:

Instructions: Enter your responses as a whole number. Indicate a negative response with a (-) negative sign.

(a) Accounting profits per month?

$

(b) Economic profits per month?

$

Total (gross) revenues per month $ 27,000 less explicit costs:   Cost of merchandise sold $17,000   Wages to cashier, stock, and delivery help 2,500    Rent and utilities 800    Taxes 700        Total explicit costs

$21,000

Accounting profit (revenue minus explicit costs) $6,000 less implicit costs:    Wages of owner-manager, 300 hours @ $10 per hour $3,000    Return on inventory, 10% per year on $120,000 1,000        Total implicit costs

$4,000

Economic profit (revenue minus all costs) $2,000

Explanation / Answer

A) Since the above table wants 300 hours for which owner hired a manager @11.

Thus it will be a part of Explicit cost. Thus Explicit cost will increase by11*300=3300

Thus total Accounting profit will decrease by $3300. Thus new accounting profit will be 6000-3300=$2700

B) Economic profit=Accounting profit-Implicit cost

Since owner hired a manager fue to which he donot need to indulge his/her labor

Thus implicit cost decreases by 300*10=3000

Thus new Ecnomic profit will be 2700-1000=1700

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