Microeconomics (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134184241
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Chapter 7, Problem 5E
To determine
Identify the accounting profit and the economic profit.
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Suppose that your friend operates a pizza restaurant in the building he owns. Similar buildings in the neighborhood rent for $4,000 per month. He is considering selling the building and renting space in the suburbs for $3,000 a month, but he decides not take the move. He reasons: “ I would like to have a restaurant in the suburbs, but I pay no rent for my restaurant now, I do not want to see my costs rise by $3,000 per month”. What do you think about his reasoning? Is his reasoning correct?
At the local Wendy's franchise, the hourly wage is $9 per worker. The franchise employs 15 workers per hour, and the marginal product of labor is 3 burgers per hour. The price of each burger is $3.50. Is the franchise maximizing profit? If not, would it increase profit by employing more workers or fewer workers? Briefly explain your answer.
Question 08: Suppose Jill Johnson operates her pizza restaurant in a building she
owns in the center of the city. Similar buildings in the neighborhood rent for $4000
per month. Jill is considering selling her building and renting space in the suburbs for
$3000 per month. Jill decides not to make the move. She reasons, "I would like to
have a restaurant in the suburbs, but I pay no rent for my restaurant now, and I don't
want to see my costs rise by $3000 per month." What do you think of Jill's
reasoning? Chose the best answer:
A)
Jill's reasoning is correct. Why move and have to start writing a check for
$3000 rent when she doesn't pay rent right now on the building she owns in
the city?
B)
Jill's reasoning is faulty. There is an opportunity cost associated with building
she owns. It is mentioned she could likely rent out her building in the city for
$4000, which would more than cover her $3000 rent in the suburbs.
Opportunity costs of "self-employed" resources, whether Jill's labor…
Chapter 7 Solutions
Microeconomics (9th Edition) (Pearson Series in Economics)
Ch. 7.A - Prob. 1ECh. 7.A - Prob. 2ECh. 7.A - Prob. 3ECh. 7.A - Prob. 4ECh. 7.A - Prob. 5ECh. 7 - Prob. 1RQCh. 7 - Prob. 2RQCh. 7 - Prob. 3RQCh. 7 - Prob. 4RQCh. 7 - Prob. 5RQ
Ch. 7 - Prob. 6RQCh. 7 - Prob. 7RQCh. 7 - Prob. 8RQCh. 7 - Prob. 9RQCh. 7 - Prob. 10RQCh. 7 - Prob. 11RQCh. 7 - Prob. 12RQCh. 7 - Prob. 13RQCh. 7 - Prob. 14RQCh. 7 - Prob. 1ECh. 7 - Prob. 2ECh. 7 - Prob. 3ECh. 7 - Prob. 4ECh. 7 - Prob. 5ECh. 7 - Prob. 6ECh. 7 - Prob. 7ECh. 7 - Prob. 8ECh. 7 - Prob. 9ECh. 7 - Prob. 10ECh. 7 - Prob. 11ECh. 7 - Prob. 12ECh. 7 - Prob. 13ECh. 7 - Prob. 14ECh. 7 - Prob. 15ECh. 7 - Prob. 16E
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Similar questions
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