Introduction to Microeconomics(assignment#4)

# Introduction to Microeconomics(assignment#4) - Assignment#4...

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1 Assignment #4 Introduction to Microeconomics Student Name: Student #: Chapter7 (p.189-191) Q2. Jackie owns and operates a web-design business. Her computing equipment depreciates by \$5,000 per year. She runs the business out of a room in her home. If she didn’t use the room as her business office, she should rent it out for \$2,000 per year. Jackie knows that if she didn’t run her own business, she could return to her previous job at a large software company that would pay her a salary of \$60,000 per year. Jackie has no other expenses. a. How much total revenue does Jackie need to make in order to break even in the eyes of her accountant? That is, how much total revenue would give Jackie just zero accounting profit? Answer: Accounting profit = Total revenue – (Explicit cost + depreciation) Here, accounting profit is zero. 0 = Total revenue – \$5,000. Therefore, Total revenue = \$5,000 = \$5,000. b. How much total revenue does Jackie need to make in order for her to want to remain self- employed? That is, how much total revenue would give Jackie just zero economic profit? Answer: Economic profit = Total revenue – Total opportunity cost (or Total economic cost), Here, Total opportunity cost = Total explicit cost + Total implicit cost, so Economic profit = Total revenue – (Total explicit cost + Total implicit cost). Rent = \$2,000 and Salary = \$60,000. And, economic profit is zero. 0 = Total revenue –

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Introduction to Microeconomics(assignment#4) - Assignment#4...

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