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Jane quit her job at Telus where she earned $36,000 a year
Jane quit her job at Telus where she earned $36,000 a year. She cashed in $40,000 in corporate bonds that earned 10% interest annually to buy a mini-bus. Jane has decided to buy the mini-bus and set up a commuter service between Maple Ridge and Vancouver. There are 300 people who will pay $800 a year each for the commuter service; $650 from each person goes for gas, maintenance, insurance, depreciation, etc.
(a) What are Jane's total revenues? (b) What are Jane's explicit costs? (c) What is Jane's accounting profit? (d) List two important implicit costs that Jane has not included.
Expert Solution
a) Computation of Jane's Total Revenue:
Total revenue= Price * Quantity
Here,
Price charge= $800
Quantity= 300
Total revenue = Price * Quantity
= $800 * 300
= $240,000
Total revenue= $240,000
b) Computation of Explicit Costs:
Explicit Costs = $650*300 = $195,000
c) Computation of Accounting Profit:
Accounting Profit= Total revenue - Total explicit costs
= $240,000-$195,000
= $45,000
Accounting Profit= $5,000
d)
Two important implicit costs of Jane are as follows -
1. Salary foregone (as she has quit her job).
2. Interest foregone (as she has cashed her corporate bonds).
Total implicit cost = $36,000 + ($40,000 * 0.10) = $36,000 + $4,000 = $40,000
The total implicit cost is $40,000.
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