Economics

Jessica Florian

BUS640 Managerial Economics

Prof. Hong Zhao

July 30, 2012

Problems Chapter 1 a) What is the total explicit, total implicit, and total Economic costs in 2010.
Explicit costs are defined as monetary opportunity costs. Explicit costs would be the accounting costs listed =$628,000.
Implicit costs are defined as nonmonetary opportunity costs.
= $15,000 (this is potential gain in stocks) + 175,000 (salary)
= $190,000 The economic costs would be the total of explicit plus implicit $818,000 b) What is accounting profit in 2010?
The income statement shows the profit listed as $177,000. c) What is the economic profit in 2010?
Economic profit would be accounting profit minus implicit costs. That would be: $177,000 minus $190,000. d) In reviewing the decision to leave his job and start Sound Devices the recent numbers will show a profit or a loss. A positive economic profit which means that he made the right decision. A negative economic profit would mean that he made the wrong decision.

Chapter 2 Problem 2 a) The price of oranges will increase. The supply of oranges will decrease due to the destruction. b) The price of oranges will decrease. The supply of oranges will decrease. c) More demand for orange juice, Price will increase for oranges, Supply will be ready. d) Grapefruit may or may not have an effect. Maybe the price and supply will decrease.
Problem #4 a) Air Travel demand will decrease. Price will increase. b) Hotel prices will increase, demand will increase. c) Rental Cars will increase, demand will increase. d) The supply of overnight mail will increase. explicit costs would be the accounting costs listed (minus income taxes for the reasons listed above), which total $628,000

Reference:

Thomas, C. & Maurice, S.C. (2011). Managerial Economics. (10th Ed) New York: McGraw Hill: Irvin