Entrepreneurial Economics Case
PAPER - 2
BUS529AO2- MANAGERIAL ECONOMICS
PROFESSOR: Dr. JOHN THEODORE
RIVIER UNIVERSITY
KARTHIK GIRIDHAVAR Problem 1
Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3000 per year. Total annual revenue from pottery sales is $72,000. Calculate the accounting profit and the economic profit for Gomez’s pottery firm.
Solution:
Annul Helper Salary Cost = $12,000 …show more content…
There are diminishing returns to taking inventory. If one worker uses one computer, he can inventory 100 items per hour. Two workers sharing a computer can together inventory 150 items per hour. Three workers sharing a computer can together inventory 160 items per hour. And four or more workers sharing a computer can together inventory fewer than 160 items per hour. Computers cost $100 each and you must pay each worker $25 per hour. If you assign one worker per computer, what is the cost of inventorying a single item? What if you assign two workers per computer? Three? How many workers per computer should you assign if you wish to minimize the cost of inventorying a single …show more content…
Problem 3
You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $500,000 per month, and you have contractual labor obligations of $1 million per month that you can’t get out of. You also have a marginal printing cost of $.25 per paper as well as a marginal delivery cost of $.10 per paper. If sales fall by 20 percent from 1 million papers per month to 800,000 papers per month, what happens to the AFC per paper, the MC per paper, and the minimum amount that you must charge to break even on these costs?
Solution:
At sales of 1 million papers per month,
Average Fixed Cost = FC/Q
= (1,000,000+500,000)/1,000,000 = $1.5/paper
Marginal costs = $0.25 + $0.10 =
BUS529AO2- MANAGERIAL ECONOMICS
PROFESSOR: Dr. JOHN THEODORE
RIVIER UNIVERSITY
KARTHIK GIRIDHAVAR Problem 1
Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3000 per year. Total annual revenue from pottery sales is $72,000. Calculate the accounting profit and the economic profit for Gomez’s pottery firm.
Solution:
Annul Helper Salary Cost = $12,000 …show more content…
There are diminishing returns to taking inventory. If one worker uses one computer, he can inventory 100 items per hour. Two workers sharing a computer can together inventory 150 items per hour. Three workers sharing a computer can together inventory 160 items per hour. And four or more workers sharing a computer can together inventory fewer than 160 items per hour. Computers cost $100 each and you must pay each worker $25 per hour. If you assign one worker per computer, what is the cost of inventorying a single item? What if you assign two workers per computer? Three? How many workers per computer should you assign if you wish to minimize the cost of inventorying a single …show more content…
Problem 3
You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $500,000 per month, and you have contractual labor obligations of $1 million per month that you can’t get out of. You also have a marginal printing cost of $.25 per paper as well as a marginal delivery cost of $.10 per paper. If sales fall by 20 percent from 1 million papers per month to 800,000 papers per month, what happens to the AFC per paper, the MC per paper, and the minimum amount that you must charge to break even on these costs?
Solution:
At sales of 1 million papers per month,
Average Fixed Cost = FC/Q
= (1,000,000+500,000)/1,000,000 = $1.5/paper
Marginal costs = $0.25 + $0.10 =