Problem Set 4 HW

Problem Set 4 HW - Spencer Whittaker Econ 103 19 October...

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Spencer Whittaker Econ 103 19 October 2012 Problem Set 4 1. a) $7,500 b) $5,000 because he is giving up 2500 extra dollars in profit to run the café instead as opposed to recycling. c) Yes, because assuming the café’s economic profit is 5000 dollars, even though the salary of a recycler has now risen an extra 1000 dollars this would only put the economic profit of the café to $4000. d) Well since he no longer has the fixed cost of $10,000 annually his accounting profit would now be $17,500. In turn, the larger accounting profit when subtracted by his opportunity cost would only lower his economic profit to 15,000 dollars. Once the recyclers now make 11000 dollars, his economic profits would lower to $14,000. e) $2,500 2. a) -Overhead costs- being that there is no ongoing expense of running this business, it seems that the cost are 0. The character expresses this as if in order to at least equal these cost that his lemonade has to be $15. -Actual production costs- the cost of producing his lemonade is expressed to be $0 because the character says he had to cut the expenses of producing the lemonade somewhere, referring to the product itself. -Cost of following health regulations- this is expressed to be an added cost that would cause the lemonade’s price to increase beyond its current mark of $15. The actual cost is not mentioned.
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