Page 577 - Krugmans Economics for AP Text Book_Neat

Tackle the Test: Free-Response Questions
1. Your firm is selling 10,000 units of output at a price of $10 per 2. Sunny owns and operates Sunny’s Sno Cone Stand. Use the
unit. Your firm’s total explicit cost is $70,000. Your firm’s data in the table provided to answer the questions below.
implicit cost of capital is $10,000, and your opportunity cost Sunny’s Sno Cone Stand: January
is $20,000. Price of Sno Cone $2
a. Calculate total revenue. Sno Cones sold 2,000
b. Calculate total implicit cost. Explicit cost $400
c. Calculate your accounting profit. Depreciation $100
d. Calculate your economic profit. Implicit cost of capital $200
e. What does the value of your economic profit calculated in
a. Calculate Sunny’s Sno Cone Stand’s total revenue for
part d tell you?
January. Section 10 Behind the Supply Curve: Profit, Production, and Costs
b. Calculate Sunny’s Sno Cone Stand’s accounting profit
Answer (5 points) for January.
c. What additional information would Sunny need in order
1 point: Total revenue = $100,000
to determine whether or not to continue operating the
1 point: Total implicit cost = $30,000 Sno Cone Stand?
d. Explain how Sunny would determine whether or not
1 point: Accounting profit = $30,000
to continue operating the business on the basis of these
1 point: Economic profit = $0 numbers.
1 point: Because your firm earns normal profit, there is no better alternative
use for your resources.

module 52 Defining Profit 535