Gilberto lives in San Francisco and runs a business that sells guitars. In an average year, he receives $842,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $452,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $38,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Gilberto does not operate this guitar business, he can work as an accountant, receive an annual salary of $48,000 with no additional monetary costs, and rent out his showroom at the $38,000 per year rate. No other costs are incurred in running this guitar business.

Question

Business

Jacob Snow

16 July, 09:27

Gilberto lives in San Francisco and runs a business that sells guitars. In an average year, he receives $842,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $452,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $38,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Gilberto does not operate this guitar business, he can work as an accountant, receive an annual salary of $48,000 with no additional monetary costs, and rent out his showroom at the $38,000 per year rate. No other costs are incurred in running this guitar business.

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Answers (1)

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Aliana Anderson · Answer 1

Gilberto is NOT earning a normal profit

Explanation:

Salary Gilberto could earn = implicit.

Wholesale cost = explicit

wages and bills = explicit

rental income = implicit

Explicit cost = 45.200 + 301.000 = 753.000

Implicit cost = 38.000 + 48.000 = 86.000

revenue = 842.000

accounting profit = 842.000 - 753.000 = 89.000

Economic profit = 89.000 - 86.000 = 3.000