Brian lives in Philadelphia and runs a business that sells boats. In an average year, he receives $701,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $420,000; he also pays wages and utility bills totaling $247,000. He owns his showroom; if he chooses to rent it out, he will receive $9,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Brian does not operate this boat business, he can work as a financial advisor, receive an annual salary of $32,000 with no additional monetary costs, and rent out his showroom at the $9,000 per year rate. No other costs are incurred in running this boat business. Identify each of Dmitri's costs in the following table as either an implicit cost or an explicit cost of selling guitars.
Implicit Cost Explicit Cost
The wages and utility bills that Dmitri pays.
The wholesale cost for the guitars that Dmitri pays
the manufacturer.
The rental income Dmitri could receive if he chose to
rent out his showroom.
The salary Dmitri could earn if he worked as a
financial advisor.
Complete the following table by determining Dmitri's accounting and economic profit of his guitar business.
Profit
(Dollars)
Accounting Profit
Economic Profit
If Dmitri's goal is to maximize his economic profit, he stay in the guitar business because the economic profit he would earn as a financial advisor would be..