Debbie was earning $100,000 a year working as a scientist for a drug company. She decided to start her own business that conducted drug trials. She estimates this entrepreneurial talent or forgone entrepreneurial income to be $10,000 a year. She used
$500,000 in savings that earned 5 percent interest annually to finance the new business. In the first year, the firm earned revenue of $1,500,000. The costs for rent, supplies, and employees’ salaries were $1,100,000. What was the accounting profit for the new business? What was the economic profit (or loss)? Explain your calculations for both questions.
Please provide the best answer for the statement.
Total revenue was $1,500,000 and explicit costs (rent, supplies, and employee salaries and benefits) were $1,100,000, so accounting profit was $400,000. The implicit costs were $135,000 ($25,000 in forgone interest on the $500,000 plus forgone salary of $100,000 plus forgone entrepreneurial income of $10,000). The firm had an economic profit of $265,000 ($400,000 minus $135,000).
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The reduction in the market output resulting from the imposition of a price floor depends on both the price elasticity of demand and the price elasticity of supply.
Answer the following statement true (T) or false (F)
If prices rise within a country, then, other things equal, the value of a unit of domestic currency will:
a. rise in both the domestic and the foreign exchange markets. b. fall in both the domestic and the foreign exchange markets. c. rise in the domestic market and fall in the foreign exchange market. d. fall in the domestic market and rise in the foreign exchange market. e. fluctuate unpredictably in both domestic and foreign exchange markets.
With loose enforcement of a rent ceiling, ______.
Fill in the blank(s) with the appropriate word(s).
The profitability of the second mover in a Stackelberg model is
A) guaranteed to be negative. B) smaller than that of the first mover. C) greater than that of the first mover. D) greater than the Cournot profits.