please help? Yakov lives in San Diego and runs a business that sells boats. In a
ID: 1189913 • Letter: P
Question
please help? Yakov lives in San Diego and runs a business that sells boats. In an average year, he receives $704,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $404,000; he also pays wages and utility bills totaling $286,000. He owns his showroom; if he chooses to rent it out, he will receive $3,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Yakov does not operate this boat business, he can work as an accountant and receive an annual salary of $20,000 with no additional monetary costs. No other costs are incurred in running this boat business. Identify each of Yakov's costs in the following table as either an implicit cost or an explicit cost of selling boats. Complete the following table by determining Yakov's accounting and economic profit of his boat business. If Yakov's goal is to maximize his economic profit, he stay in the boat business because the economic he would earn as an accountant would beExplanation / Answer
Implicit Costs
The rental income Yakov could receive if he chose to rent out his showroom.
The salary Yakov could earn if he worked as an accountant.
Other two are explicit costs.
Accounting profit = 704000 – 404000 – 286000 = $14000
Economic profit = Accounting profit – Implicit costs = 14000 – 3000 – 20000 = –$9000.
Economic profit as an accountant = 3000 + 20000 = $23000 – $14000 = $9000.
If Yakov’s goal is to maximize his economic profit, he should not stay in the boat business because the economic profit he would earn as an accountant would be $9000.
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