A firm pays in cash $250000 in wages, $55430 in interest on borrowed money capit

Question

A firm pays in cash $250000 in wages, $55430 in interest on borrowed money capital and $74320 for the yearly rental of its factory building. If the entrepreneur worked for somebody else as a manager, he would earn at most $44500 per year and if he lent out his money capital to somebody else in a similarly risky business, he would at most receive $16600 per year. Keeping in view the above information: Calculate: The explicit cost of the firm. The implicit cost of the firm. The total cost of the firm. If the entrepreneur received $495680 from selling his years output, then calculate his total profit. What will be the total profit if the entrepreneur's total revenue were $413934 instead?

Explanation / Answer

A a) Explicit Cost     =========    Wages    + Interest onborrowed Capital + Factory Rent $250,000  +              $55,430                +     $74,320     =   $379,750 b) Implicit Cost      ========= Cost of forgone payment he would have received working as amanger          = $44,500 Cost of forgone payment he would have received working as amanger          = $16,600                                                                                                                       ----------                                                                                                                        $61,100                                                                                                                        ======== c) Total Cost = Explicit Cost + Implicit Cost = $379,750+ $61,100 = $440,850 Cost of forgone payment he would have received working as amanger          = $16,600                                                                                                                       ----------                                                                                                                        $61,100                                                                                                                        ======== c) Total Cost = Explicit Cost + Implicit Cost = $379,750+ $61,100 = $440,850 B His total Profit = $495,680 - Explicit Cost 379,750 =$115,930 C If sales would have $413,934 then $413,934 - 379,750 =$34184

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