Econ1101-exam answer (1 Viewer)

[bossleymaths]

ok guys wat do u think the answer would be to this question?

Koby operates his own business (a surfing school) at a local beach where he teaches tourists how to ride surfboards.
If he were not running this business he would be employed by the local council as a beach inspector and paid $45,000 per year.
His annual revenue from the school is $75,000 per annum. His costs are advertising $3,000 per year and an annual license fee which he pays to the Council for the use of the beach of $5,000. In addition he pays insurance of $7,000 per annum against injuries to his clients.
He provides surfboards which cost him $30,000; he paid for these by using his savings of $15, 000 which he had in the bank where it received interest of 3%p.a the remaining $15, 00 he borrowed form a credit union at an interest rate of 10% per annum.
Calculate his:
Accounting profit, his economic profit and his normal profit, Will he stay in business? (8 marks)

I HAVE DONE IT HEAPS OF TIMES CANT GET A STRAIGHT ANSWER
ii got econ prof -16050
acct prof 30000
normal profit 46050

thank you

 

[kezzaonline]

First of all identify and separate all your costs.

Total Revenue = 75 000

Explicit Costs
- 3000 for advertising
- 5000 for license fee
- 7000 for insurance
- 15 000 for surfboards (he paid himself from savings)
- 1500 for interest incurred from borrowing 15000
Since they did not say he would be repaying any of the 15 000 back I just left it.
So Total Explicit Costs = $31 500

So Accounting Profit = 75000-31500 = $43 500

Implicit Costs
- 45 000 wages he could have earned
- 450 interest he could have earned from savings
So total implicit costs = $45 450

And Economic Profit = 75000 - 31500 - 45450 = -$1950

Thats what I got, tell me if I got it wrong!

 

[itunes]

omg.i have no idea how to do this one =.=

(b) Construct a diagram showing the average and marginal cost curves, and the demand and marginal revenue curves for a natural monopoly. Use your diagram to explain why profit maximising behaviour by the monopolist is inefficient from society’s point of view.
(6 marks)
(c) Suppose the government seeks to regulate the behaviour of the monopolist by price regulation. Consider the advantages and disadvantages of alternative criteria for setting the regulated price. (6marks)