View the step-by-step solution to:

Assume that I have decided to start your own Internet business to sell cookbooks online (justcookbooks. I estimate that the annual cost of this...

Assume that I have decided to start your own Internet business to sell cookbooks online (justcookbooks.com). I estimate that the annual cost of this business in the first year will be as follows:


Fixed explicit costs (annually):

  • Technology (Web design and maintenance)  $5,000
  • Postage and handling                                  $1,000
  • Miscellaneous                                             $5,000
  • Equipment                                                  $4,000
  • Overhead                                                   $1,000

TOTAL Explicit Fixed Costs (annual)                      $16,000


Fixed implicit costs (annually):

  • Lost wages from job given up (annual)          $50,000

Variable cost = $20 per book.


Part 1:

Assume that the equation for demand is Q = 40,000 - 500P, where

  • Q = the number of cookbooks sold per year
  • P = the retail price of books



  1. Why, according to an economist, should implicit costs (i.e., lost wages from job given up) be included in the total cost of your product to compute economic profit? 
  2. Why does price elasticity of demand change as you move up the demand curve (more specifically, as the price of the product increases)?
  3. Explain why MR = MC produces maximum profit for a company. 

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question