a. Calculate the economic cost and economic profit for Katso's Pet Salon. Would an accountant come to
Question:
a. Calculate the economic cost and economic profit for Katso's Pet Salon. Would an accountant come to the same conclusion about the profitability of this firm? Explain.
Wages P25,000
Interest paid on loans 3,000
Other expenditures for inputs 31,000
Total Revenue 90,000
Katso's Pet Salon hires you to determine the company's status.
The data above provides information on the company's annual costs and revenues. Katso spends at least 40 hours a week at her place of business. If she closed the salon, she could work for her competitor and earn P15,000 per year. She also owns the building that houses the salon and could rent it out for P18,000 per year if she closes her business.
b. When Katso Corporation produces 35 units of output, its average variable cost is P5. The marginal cost of the 36th unit of output is P7. If the firm choose to produce the 36th unit of output, what will happen to average variable cost? Explain.
c. Toothpicks are sold in a perfectly competitive market. The market price is currently P3 per box of one hundred toothpicks. At its current level of production, a representative firm in the toothpick industry is producing at a level of output such that long-run average cost is P3.25 per box of one hundred toothpicks. Given this information, is the toothpick industry in equilibrium? Explain
Expert Answer:
a To calculate the economic cost and economic profit for Katsos Pet Salon we need to consider explicit costs implicit costs and total revenue 1 Explicit costs Wages P25000 Interest paid on loans P3000 ... View the full answer
