ECN 104 Lecture Notes - Lecture 3: Variable Cost, W. M. Keck Observatory, Fixed Cost
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8-4 (key question) gomez runs a small pottery firm. He hires one helper at ,000 per year, pays annual rent of ,000 for his shop, and spends ,000 per year on materials. He has ,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him ,000 per year if alternatively invested. ,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth ,000 per year. Total annual revenue from pottery sales is ,000. Calculate accounting profits and economic profits for gomez"s pottery. Explicit costs: ,000 (= ,000 for the helper + ,000 of rent + ,000 of materials). Implicit costs: ,000 (= ,000 of forgone interest + ,000 of forgone salary + ,000 of entreprenuership). Accounting profit = ,000 (= ,000 of revenue - ,000 of explicit costs);
