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This Study Resource Was: Determining Profit

Wally owns Wally's Wind Chime Wagon. His revenue for the year was $50,000. His salary and rent costs were $20,000 and $5,000 respectively. He could earn $22,000 managing a restaurant or earn interest of $1,000 at the bank. His accounting profit is $50,000 - $20,000 - $5,000 = $25,000. His economic profit is $25,000 - $22,000 = $3,000.

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3K views3 pages

This Study Resource Was: Determining Profit

Wally owns Wally's Wind Chime Wagon. His revenue for the year was $50,000. His salary and rent costs were $20,000 and $5,000 respectively. He could earn $22,000 managing a restaurant or earn interest of $1,000 at the bank. His accounting profit is $50,000 - $20,000 - $5,000 = $25,000. His economic profit is $25,000 - $22,000 = $3,000.

Uploaded by

anon_954124867
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Determining Profit

Consider the following information about Wally's Wind Chime Wagon:

• Revenue for one year = $50,000

• Salary paid during the year = $20,000

• Rent of the wagon for the year = $5,000

• Salary Wally could make managing the local restaurant = $22,000

• Interest earned in the local bank on savings, the next best way to use his capital = $

1. Calculate the following (show your work):

A. Wally's Accounting Profit

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B. Wally's Economic Profit
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2. Peaches Peanut Butter Company sells 5,000 jars of peanut butter at a price of $5 per jar. The explicit cost is
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$20,000. The cost of what their capital could earn elsewhere is $3,000 and they could also be paid $10,000 by
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selling their peaches instead of adding them to their peanut butter. Note: Calculate always means: Show your
work!

a. Calculate Total Revenue


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b. Calculate total implicit cost


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c. Calculate accounting profit


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d. Calculate economic profit

e. Should the company sell peanut butter or sell peaches? Explain.

https://www.coursehero.com/file/32478848/AP-Economics-224-Problem-Setpdf/
MR = MC Practice
Watch Jacob Clifford's Micro 3.7 MR = MC Practice and answer the following questions.

1. How is marginal cost calculated?

2. What do we equate to determine the amount to produce?

3. How is Total Revenue determined for the perfectly competitive firm?

4. Use the data in this table to answer the questions below.

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a. Determine the TR for each of the number of units in Mr. Clifford's video using a price of $20 per unit.
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b. Calculate the MC and MR for each unit.


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c. Calculate the profit for each unit.

d. Using the optimum profit rule, how many units will be produced?

https://www.coursehero.com/file/32478848/AP-Economics-224-Problem-Setpdf/
Law of Diminishing Returns
Watch Jacob Clifford's Micro 3.1 Law of Diminishing Marginal Returns and answer the following questions.

1. Define the marginal product.

2. Using the data, calculate and enter the marginal product of labor on the chart.

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3. Immediately, when one more worker is added in the example in the video, output increases. To what can we
attribute this increase in output? Explain.
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4. With which unit does decreasing returns to labor begin? What causes this to happen?
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5. With which unit does negative returns to labor result? What causes this to happen?

6. So, to conclude, given a fixed amount of resources, what happens when we add more inputs?

https://www.coursehero.com/file/32478848/AP-Economics-224-Problem-Setpdf/

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