E202Solutions6.2

E202Solutions6.2 - Answer: To earn a normal profit, the caf...

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Answer : To earn a normal profit, the café would have to cover all its implicit and explicit costs. The opportunity cost of John's time is $1,000, whereas the café's accounting profit is only $750. Thus, the café would have to earn additional revenues of $250 a month to make a normal profit. 4. The city of New Orleans has 200 advertising companies, 199 of which employ designers of normal ability at a salary of $100,000 a year. Paying this salary, each of the 1999 firms makes a normal profit on $500,000 in revenue. However, the 200 company employs Janus Jacobs, an th unusually talented designer. This company collects $1,000,000 in revenues due to Jacob’s talent. a. How much will Jacob’s earn? What proportion of his annual salary will be economic rent? Answer : Jacobs will earn $600,000/year, the normal $100,000 salary for a designer plus the $500,000 economic rent he collects for his special talent (the extra revenue he brings in). 5/6 of his salary is economic rent.
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.

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