Managerial Economics Sample Essay

During a twelvemonth of operation. a steadfast collects $ 175. 000 in gross and spends $ 80. 000 on natural stuffs. labour disbursal. public-service corporations. and rent. The proprietors of the house have provided $ 500. 000 of their ain money to the house alternatively of puting the money and gaining a 14 percent one-year rate of return.

a. The expressed costs of the house are $ 80. 000. The inexplicit costs are $ 70. 000. Entire economic cost is $ 150. 000. B. The house earns economic net income of $ 25. 000.
c. The firm’s accounting net income is $ 95. 000.
d. If the proprietors could gain 20 per centum yearly on the money they have invested in the house. the economic net income of the house would be $ – 5. 000 ( when gross is $ 175. 000 ) .

a. Explicit cost ( market – supplied resources ) = $ 80. 000
Implicit cost ( proprietor – supplied resources ) = 50. 000 * 14 % = $ 70. 000 Entire economic cost = explicit cost + implicit cost = $ 150. 000

B. Economic net income = entire gross – entire economic cost
= entire gross – explicit cost – implicit cost = 175. 000 – 150. 000 = $ 25. 000

c. Accounting net income = entire gross – explicit cost
= 175. 000 – 80. 000 = $ 95. 000

d. Economic net income = entire gross – entire economic cost
= entire gross – explicit cost – implicit cost = 175. 000 – 80. 000 – 500. 000 * 20 % = $ – 5. 000

Applied jobs

At the beginning of the twelvemonth. an audio applied scientist quit his occupation and gave up a wage of $ 175. 000 per twelvemonth in order to get down his ain concern. Sound Devices. Inc. The new company builds. installs. and maintains custom audio equipment for concern that requires high-quality audio systems.

To acquire started. the proprietor of Sound Devices spent $ 100. 000 of his forces nest eggs to pay for some of the capital equipment used in the concern. In 2007. the proprietor of Sound Devices could hold earned a 15 per centum return by puting in stocks of other new concerns with hazard degrees similar to the hazard degree at Sound Devices. a. What are the entire explicit. entire explicit. and entire economic costs in 2007? B. What is accounting net income in 2007?

c. What is economic net income in 2007?
d. Given your reply in portion c. evaluate the owner’s determination to go forth his occupation to get down Sound Devices. a. Explicit cost = sum runing cost and disbursals = $ 555. 000 Implicit cost = 100. 000 * 15 % = $ 15. 000

Entire economic cost = explicit cost + implicit cost
= 555. 000 + 15. 000 = $ 570. 000

B. Accounting net income = entire gross – explicit cost
= 970. 000 – 555. 000 = $ 415. 000

c. Economic net income = entire gross – entire economic cost
= entire gross – explicit cost – implicit cost =970. 000 – 555. 000 – 15. 000 = $ 400. 000

d. Harmonizing to the accounting net income and economic net income can understand that it is right for this audio applied scientist to give up a wage of $ 175. 000 per twelvemonth in order to get down his ain concern. the net income he earns from his company is big than his wage.

When Burton Cummings graduated with awards from the Canadian Trucking Academy. his male parent gave him a $ 350. 000 tractor-trailer rig. Recently. Burton was touting to some fellow teamsters that his grosss were typically $ 25. 000 per month. while his operating costs ( fuels. care. and depreciation ) amounted to merely $ 18. 000 per month. Tractor-trailer rigs indistinguishable to Burton’s rig rent for $ 15. 000 per month. If Burton was driving trucks for one of the viing trucking houses. he would gain $ 5. 000 per month.

a. How much are Burton Cummings’s explicit costs per month? How much are his inexplicit costs per month? B. What is the dollar sum of the chance cost of the resources used by Burton Cummings each month? c. Burton is proud of the fact that he is bring forthing a net hard currency flows of $ 7. 000 ( = $ 25. 000 – $ 18. 000 ) per month. since he would be gaining merely $ 5. 000 per month if he were working for a hauling house. What advice would you give Burton Cummings?

a. Explicit cost = $ 18. 000
Implicit cost = $ 350. 000

B. Opportunity cost = market – supplied resources ( expressed cost ) + proprietor – supplied resources ( inexplicit cost ) = 18. 000 + 350. 000 = $ 368. 000

c. accounting cost = $ 7. 000
economic net income = entire gross – entire economic cost
= entire gross – explicit cost – implicit cost = 25. 000 – 18. 000 – 350. 000 = $ – 343. 000

It can be known that his economic net income of per month is negative. Since the proprietors of houses must cover the costs of all resources and by the house. maximising economic net income. instead that accounting net income. is the aim of the firm’s proprietors. Therefore. really it can non be considered as the net income state of affairs.

Suggestions:
Assuming that he rents a same truck which rent monetary value is $ 15. 000 other than use the truck which given by his male parent. therefore. his inexplicit cost is zero. explicit cost = 18. 000 + 15. 000 = $ 33. 000. Therefore. economic net income = 25. 000 – 18. 000 – 15. 000 = $ – 8. 000 accounting net income = 25. 000 – 33. 000 = $ – 8. 000. economic net income = accounting net income

Then he rent the truck which given by his male parent can acquire a net income of $ 15. 000 each month. Therefore. the concluding economic net income of per month = -8. 000 + 15. 000 = $ 7. 000 Accounting net income = – 8. 000 + 15. 000 = $ 7. 000.

Therefore. his net income of per month is $ 7. 000. which is larger than the net income in other trucking company.

Explain why it would be Andre Agassi or Venus Williams more to go forth the professional tennis circuit and open a tennis store that it would for the manager of a university tennis squad to make so.

First. the net income is stable to train a university tennis squad. and there is no any hazard. it needs non to be ain investing to lease land and equipment. hence. it can salvage the inexplicit cost and expressed cost.

Furthermore. the net income is instable to run a tennis store. and it besides is hazardous. it needs the ain investing to lease house. goods and equipment. Therefore can increase the inexplicit cost and expressed cost. his economic net income. accounting net income will be changed with the alterations of entire gross. inexplicit cost and expressed cost.

In brief. run a tennis store will pay much more than training a university tennis squad.