Business, 04.05.2021 16:00 kimberlywhite19
Andrew lives in Chicago and runs a business that sells guitars. In an average year, he receives $701,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $420,000; he also pays wages and utility bills totaling $247,000. He owns his showroom; if he chooses to rent it out, he will receive $9,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Andrew does not operate this guitar business, he can work as a financial advisor and receive an annual salary of $32,000 with no additional monetary costs. No other costs are incurred in running this guitar business. Identify each of Dmitri's costs in the following table as either an implicit cost or an explicit cost of selling guitars. Implicit CostExplicit CostThe wages and utility bills that Dmitri pays The wholesale cost for the guitars that Dmitri pays the manufacturer The rental income Dmitri could receive if he chose to rent out his showroom The salary Dmitri could earn if he worked as a financial advisor Complete the following table by determining Dmitri's accounting and economic profit of his guitar business. Profit(Dollars)Accounting ProfitEconomic ProfitIf Dmitri's goal is to maximize his economic profit, he stay in the guitar business because the economic profit he would earn as a financial advisor would be.
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