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BUS 640 - DQ's - BUS 640 Managerial Economics 1 Title...

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BUS 640 – Managerial Economics 1. Title Opportunity Costs When Burton Cummings graduated with honors from the Canadian Trucking Academy, his father gave him a $350,000 tractor-trailer rig. Recently, Burton was boasting to some fellow truckers that his revenues were typically $25,000 per month, while his operating costs (fuel, maintenance, and depreciation) amounted to only $18,000 per month. Tractor-trailer rigs identical to Burton’s rig rent for $15,000 per month. If Burton was driving trucks for one of the competing trucking firms, he would earn $5,000 per month. Burton is proud of the fact that he is generating a net cash flow of $7,000 ($25,000 — $18,000) per month, since he would be earning only $5,000 per month if he were working for a trucking firm. Compute both Burton Cummings’s explicit costs per month and his implicit costs per month. Explicit costs are defined by Thomas and Maurice (2011) as the monetary opportunity costs of using market-supplied resources (p 9). Burton Cummings explicit costs are $18,000 . In addition , implicit costs are $7,000 (revenue – operating costs). Thomas and Maurice describe these costs as nonmonetary opportunity costs of using owner-supplied resources (2011, p 9). Compute the opportunity cost of the resources used by Burton Cummings each month. Opportunity costs are described by Thomas and Maurice as what a firm’s owners give up to use resources to produce goods or services (2011, p 8). Burton Cummings opportunity costs each month are $13,000 . He currently nets $7,000 (revenue – expense) and he has an opportunity to net $20,000 ($5,000 salary + $15,000 rental income + 0 expenses = $20,000. Thus, the difference What advice would you give Burton Cummings? Explain your advice in terms of opportunity costs. I would advise Burton Cummings to remain employed and bringing in a salary. This income, coupled with the rental income from renting out his tractor-trailer will bring in substantially higher revenue because he has zero payout for operating costs (since his employer would be absorbing the operating costs of the rig he was employed to drive). The only unknown factor, which would affect his opportunity cost, would be the maintenance and depreciation costs that he would incur as an owner of the rig he rented out. Thomas, C. & Maurice, S. (2011). Managerial economics : Foundations of business analysis and strategy (10th ed.). New York: McGraw-Hill. Supply and Demand The Wall Street Journal reported that recent law school graduates were having a very difficult time obtaining jobs in the legal profession. Many law schools said that 10 to 20 percent of their graduates still had not found jobs. The historical average had been 6 to 8 percent. Many recent graduates were taking
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jobs outside law at much lower wages than were typically paid to beginning lawyers. Based on this information, what would be your prediction about lawyers’ salaries for the future? Please explain your answers in terms of the market for lawyers fully explaining what changes will occur to demand, supply, quantity demanded, quantity supplied, and equilibrium price for lawyers (starting wages for lawyers). Respond to at least two of your fellow students’ postings.
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