Hi k9queen!!
Note: After read the Alice's question I found some possible typos, the
options to answer the first question are all false. Then I check the
possibilities with the fourth question and I deduced that the proper
answer for the first question is $200,000 (here is a typo in the
option c.) and I think that you forgot to write the Alice's earnings
in her previous job, that are $80,000. If that are not the correct
numbers please let me know by using the clarification feature and I
will redo the problem for you with the correct numbers that you will
give if it is the case.
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Alices yearly implicit costs equal to:
c)$200,000
Implicit costs: These are the cost that Alice gives up for running her
own business. In this case:
$80,000 from the salary of the job that Alice had been working at.
$10,000 x 12 = $120,000 from renting out the building she owns.
Total Implicit costs = $200,000
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Alice's yearly explicit costs equal:
a)$145,000
The Explicit Costs are the input costs that require an outlay of money
by the firm. In this case:
$60,000 x 2 = $120,000 that she pays for 2 people working for her.
$25,000 from her supplies and equipment for the year.
Total Explicit costs = $145,000
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Alice's accounting profit equals:
a)positive $75,000
Accounting Profits = Total Revenue - Explicit Costs =
= $220,000 - $145,000 = $75,000
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Alice's economic profit is equal to:
d)negative $125,000
Economic profits = Total Revenue - (Explicit Costs+Implicit Costs)
= $220,000 - ($145,000 + $200,000) =
= $220,000 - $345,000 = -$125,000
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If the salary of the job that Alice had been working at went down then
this would:
c)cause implicit costs to decrease and cause economic profit to
increase.
Only Economic profits calculation account for Implicit costs.
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If the salary she pays to the workers who work for her goes down, then
this would:
a)increase both accounting and economic profit
In this case we have less explicit costs; because both, accounting and
economic profits, account for explicit costs then both accounting and
economic profit will increase.
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2)Suppose Kevin argues that college education should be subsidized
because it provides spillover benefits to society. His argument: by
going to school a person becomes more valuable to society, more
productive, and more valuable to individual firms. Why would an
economist would disagree with this argument?
The most usual argument against subsidies to college education is that
the rich take up most education, by that way subsidies would increase
inequality:
"Government tends to give money to those who vote and are articulate.
For example, consider the large amount of support that governments
give colleges and universities in the United States. State governments
often fund more than three-fourths of the cost of tuition at state
schools, and the federal government also spends substantial amounts in
support of higher education. Only about one-fourth of young people
receive a college degree, and they will form the bulk of those who in
the future will earn high incomes. Further, most of these young people
come from families that presently have incomes that are above average.
In rich suburbs virtually all students finish high school and often
about 90% continue on to college. In poor inner-city areas, sometimes
only half of the students finish high school and only a small percent
go on to college. College education represents a case in which those
who benefit from state subsidies are, on the average, richer than the
taxpayer who funds that activity. State support of higher education
takes from the poor and gives to the rich."
From "Government Redistribution II" at CyberEconomics website:
http://ingrimayne.saintjoe.edu/econ/resouceProblems/GovernRedist2.html
Another objection that an economist can do on Kevin's argument is that
he is assuming an Accountant point of view:
"Accountants and economists tend to see the world in different ways,
the economist with the efficient allocation of resources under
conditions of scarcity, the accountant with providing a true and fair
picture of certain selected events. Accountants do not account for
opportunity costs, they not take count on what is being given up or
sacrificed when a particular choice is made. Economists consider
opportunity cost to be the very basis of choice and the actions and
outcomes which flow from it."
Summarized from "Where Economists and Accountants Depart" at Brent
Wheeler Limited website:
http://www.brentsjam.com/Notes/notesaccsecons.htm
Kevin accounts only for the future benefits forgetting the opportunity
cost of going to college. The cost of the college education to the
individual includes tuition and other explicit costs as well as the
earnings or leisure foregone by the individual because she attended
college.
The spillover principle states that for some goods the costs or
benefits associated with the good are borne in part by those other
than the consumer or producer. Economists' concern about spillovers is
that unless decision-makers experience the full costs or benefits of
their actions it is unlikely that decisions will be made that are in
the general interests of society.
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I hope this helps you. PLease feel free to request for any
clarification needed, I will gladly repond to your requests.
Best regards.
livioflores-ga |
