Chapter 1
Applied Problems
1.a) Total explicit cost= $555,000+$45,000+$28,000+$165,000
= $ 793,000
Total implicit cost= $175,000+(0.15x 100,000)
= $ 190,000
Total economic cost= $793,000+190,000
= $983,000
b) Accounting profit= Total revenue- Explicit cost
=970,000-793,000
=$177,000
c) Economic profit= Total revenue-total economic cost
= 970,000-793,000-15,000
=$ 162,000
d) The audio engineer is facing an economic loss of . Hence, he should have continued
working on a salary of $175,000 p
3. a) Explicit cost= 18,000
Implicit cost= 15,000
b) Opportunity cost= 5,000
c) Burton right now is earning a net cash flow of $7,000. He should have rented out his
tractor trailer rig which would yield him $15,000 per month and worked as a driver with
salary of $15,000 per month. This would have generated him $20,000 instead of $7000 per
month.
7.
The arrangement of SkyWest with Delta and United benefitted it in various ways. SkyWest
had to repaint its aircraft but it was tying up with one of the most powerful airlines in its
market. It took advantage of Delta and United’s established market and they beared all the
fuel cost, helped in increasing its load factor and managed the ticket prices. Even though