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Midterm 2.solution

# Midterm 2.solution - Midterm 2 solutions Part I MC 1 6 11...

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Midterm 2 solutions Part I. MC 1) D 2) D 3) C 4) E 5) A 6) D 7) B 8) A 9) E 10) B 11) D 12) A 13) A 14) B 15) C 16) A 17) A 18) B 19) A 20) B 21) C 22) C 23) A 24) B 25) E 26) C 27) B 28) C 29) A 30) C 31) C 32) E 33) C 34) B 35) B Part II Short answer questions 1. (6 points) Vivian is running a perfume shop. Its income statement is as follows: Sales \$12000 Cost of Good Sold \$4000 Wage Expense \$2000 Rental Expense \$1400 Other Expense \$850 Alternatively, Vivian can earn \$8500 as a financial analyst. However, she prefers to run her little perfume shop and is willing to pay \$3000 to avoid being an analyst. (a) Vivian's accounting profit is \$__________________________ . Accounting profit = TR - explicit costs = 12000 - 4000 - 2000 - 1400 - 850 = 3750. (b) Vivian's economic profit is \$________________________________________ .

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When Vivian is running her shop, she forgoes the salary she can earn as a financial analyst, \$8500, while she benefits \$3000 for not being an analyst. Economic profit = accounting profit - implicit cost = 3750 - 8500 + 3000 = -1750. 2. (12 points) Rosalie's demand for lollipops is P = 8 – 0.4Q, where P is the price of lollipop and Q is the quantity of lollipops. The market price for each lollipop is known as \$2. Rosalie's aunt runs a grocery, and she
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Midterm 2.solution - Midterm 2 solutions Part I MC 1 6 11...

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