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Unformatted text preview: Practice Questions to accompany Mankiw & Taylor: Economics 1 Chapter 13 1. Joe runs a small boat factory. He can make ten boats per year and sell them for €25,000 each. It costs Joe €150,000 for the raw materials (fibreglass, wood, paint, and so on) to build the ten boats. Joe has invested €400,000 in the factory and equipment needed to produce the boats: €200,000 from his own savings and €200,000 borrowed at 10 percent interest. (Assume that Joe could have loaned his money out at 10 percent, too.) Joe can work at a competing boat factory for €70,000 per year. a. What is the total revenue Joe can earn in a year? Answer: 10 x €25,000 = €250,000 b. What are the explicit costs Joe incurs while producing ten boats? Answer: €150,000 + (€200,000 x 0.10) = €170,000 c. What are the total opportunity costs of producing ten boats (explicit and implicit)? Answer: €150,000 + (€400,000 x 0.10) + €70,000 = €260,000 d. What is the value of Joe's accounting profit? Answer: €250,000 – €170,000 = €80,000 e. What is the value of Joe's economic profit?...
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This note was uploaded on 07/06/2009 for the course BUS BAM303 taught by Professor Na during the Spring '09 term at 東京大学.
- Spring '09