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Question 8 10 pts You want to buy a new bike
Question 8 10 pts You want to buy a new bike. The benefit you get from the bike, expressed in dollars, is $500. The price is $300. If you don't buy the bike, you buy a new Chromebook that also costs $300. The benefit you get from the Chromebook, expressed in dollars, is $400. Your willingness to pay for a bike is $_Enter a number only, without the $sign.
The recent issue of Business Review reported the following: As a result of declining sales, major car manufacturers decided to sell vehicles to rental companies at a loss rather than to lay off employees. Apparently, closing and reopening manufacturing facilities is costly, because automakers obliged to pay employees even if they are not working. 1. Would you define "at a loss” as an economic or accounting profit? 2. How would they be different in this case? Elaborate on your response.
Expert Solution
1
Net benefit from bike = Benefit from bike - Cost associated with bike = 500 - 300 = $200
Net benefit from Chromebook = Benefit from Chromebook - Cost associated with Chromebook = 400 - 300 = $100
Willingness to pay for bike = Net benefit from bike - Net benefit from Chromebook = 200 - 100 = 100
2
1) it is an economic loss. This is because the company has decided to continue its operations which is possible only when there is economic loss. If there is accounting loss, company will find it better to close business operations and layoff entire staff
2) in this case we see that the company has decided to continue to pay its workers which is a fixed cost because they had to pay them irrespective of whether they are working or not. This is because if the company is closed and is reopen, there will be a loss of both the fixed cost and the variable cost which means the company will be facing accounting loss. Now when it is continuing business operations it is able to cover its variable cost and some portion of the fixed cost so that it is only suffering from economic loss and there is accounting profit.
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