PLES HELP WITH THIS PROBLEM Q1. Khadija operates a business that prints designs

ID: 1211798 • Letter: P

Question

PLES HELP WITH THIS PROBLEM

Q1. Khadija operates a business that prints designs on T-shirts. Khadija's total revenue per year equals

$500,000. The cost of labor per year is $125,000, the cost of raw materials and supplies is $200,000 per

year, while the value of capital for the business is $200,000. Khadija knows she could earn $50,000 per

year working as a printer at a competitor's business. She also knows she could sell her business and the

land it sits on for $600,000 and earn 10% a year on these funds.

a. What are Khadija's explicit costs? Calculate a value for these explicit costs.

b. What are Khadija's implicit costs? Calculate a value for these implicit costs.

c. What are Khadija’s accounting profits?

d. What are Khadija’s economic profits?

Explicit costs are the tangible costs that are incurred. 125000, 200000, 200000 = 555k are the explicit costs.

Implicit costs are the opportunity costs, 50000+60000=110000.

Accounting profits dont consider opportunity costs, P=500k-550k = -50k

Economic profits consider opportunity costs, P = -50K - 110k = -160K.

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