Asked by Yenifer Medina on Jun 03, 2024
Verified
(Scenario: Betty's Cookie Shop) Use Scenario: Betty's Cookie Shop.Betty is trying to decide at what point she should stop selling cookies,and she knows she cannot change the price of a cookie.She should stop selling cookies if her: Scenario: Betty's Cookie Shop
Betty runs a cookie shop where she sells cookies for $1 each.She employs five people,each of whom worked a total of 500 hours last year;she paid them $10 per hour.Her costs of equipment and raw materials add up to $75,000.Her business ability is legendary,and other companies have offered to pay Betty $100,000 to come to work for them.She also knows she could sell her cookie shop for $150,000.The bank in town pays an annual interest rate of 3% on all funds deposited with it.
A) economic profit is positive.
B) explicit and implicit costs are less than her revenues.
C) implicit costs are greater than her accounting profits.
D) economic profit is equal to her accounting profit.
Economic Profit
The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, representing a profit above the opportunity cost.
Explicit and Implicit Costs
Explicit costs are direct payments made to others in the course of running a business, like wages or rents, while implicit costs represent the opportunity costs of using resources owned by the business.
- Ascertain the function and computation of marginal costs and benefits in making optimal decisions.
Verified Answer
In order to calculate Betty's economic profit, we subtract her explicit and implicit costs from her revenue. Her total revenue would be $1 per cookie times the number of cookies sold. However, we do not know how many cookies she sold, so we cannot calculate her total revenue. However, we do know that her implicit costs are greater than her accounting profits, since her accounting profits only consider her explicit costs and do not take into account her opportunity costs. Therefore, the best choice is C.
Learning Objectives
- Ascertain the function and computation of marginal costs and benefits in making optimal decisions.
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