Department of Economics
Econ 101: Introduction to Economics I
PROBLEM SET 5 (With Answers)
PART A – PROBLEMS
The table below represents the annual income statement of Mazlum’s Hardware Store.
Mazlum worked full time at the store. He used $25,000 of his savings to furnish and
stock the store (included in costs). He was recently offered a $20,000 annual salary to
work in an
Annual Income Statement
Sales of Merchandise
Depreciation on fixtures
Calculate the accounting profits for Mazlum’s Hardware Store.
What are some imputed costs to be taken into account?
Mazlum should include costs of annual interest rate on $25,000 investment
(assuming he could recover it); and $20,000 opportunity cost for his own salary.
interest rate is 10%, what are the total costs of this business?
Total costs would be accounting costs of $80,000 plus interest of $2,500 and
Calculate the economic profits of Mazlum’s Hardware Store.
A loss of $7,500 is indicated for the past year ($15,000 – $2,500 –$20,000 =