Looking for help on these questions. Chapter 10: 1. Bob is a resident of Washing

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Looking for help on these questions.

Chapter 10: 1. Bob is a resident of Washington, DC. He could earn $65,000 a year working on Capitol hill as a staffer. Bob is considering opening his own lobbying firm. He's done some research and he knows the following information: It would cost $500,000 to purchase office space for one year At the end of the year, he can sell that office space for $450,000 He will have to purchase equipment for his office, marketing materials, a webpage, and pay other employees adding up to 300,000 per year He could have invested the 500,000 he used to purchase an office at a 2% interest rate . . He could have assisted with another lobbying firm and earned $100,000 a year But, he knows he's likely to get a big contract from a health insurance company that will pay $2,000,000 for the year. Fill out the following information: Economic Accounting: a. Total Revenue: Cost of Market Resources: Cost of Firm Resources: Depreciation Foregone Interest: Cost of Resources Supplied by Owner: Bob's Normal Profit: Foregone Wages: Total Opportunity Cost of Production: Economic Profit:

Explanation / Answer

Question 1

Bob expects to get a big contract from a health insurance company that will pay him $2,000,000 a year.

So,

Total Revenue is $2,000,000

Calculate the cost of market resources -

Cost of market resources = Expenditure on equipment, marketing materials, web page, and employees salaries

Cost of market resources = $300,000

So,

The cost of market resources is $300,000.

Calculate the cost of firms resources -

Depreciation = Purchase price of office space - Sale price of office space

Depreciation = $500,000 - $450,000 = $50,000

So,

The depreciation is $50,000

Amount invested in office space could have earned an interest of 2%.

Foregone interest = $500,000 * 0.02 = $10,000

So,

The foregone interest is $10,000.

Calculate the cost of resources supplied by the owner -

Bob's normal profit = Amount that he can earn assisting another lobbying firm = $100,000

So,

Bob's normal profit is $100,000

Foregone wages = Amount that he can earn by working as staffer at capitol hill = $65,000

So,

Bob's foregone wages is $65,000

Calculate the opportunity cost of production -

Total opportunity cost = Cost of market resources + Depreciation + Foregone interest + Bob's normal profit + Foregone wages

Total opportunity cost = $300,000 + $50,000 + $10,000 + $100,000 + $65,000 = $525,000

So,

The total opportunity cost of production is $525,000.

Calculate economic profit -

Economic profit = Total revenue - Total opportunity cost of production

Economic profit = $2,000,000 - $525,000 = $1,475,000

So,

The economic profit is $1,475,000

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