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Question: Answer all the questions: Q 1) William Howe must decide whether resort during June, July and August of vacation at $5 a day and he intend 0 start a business renting beach umbrellas at an ocean operate this business, he does intend to lease 50 umbrellas for the three- month period next summer. He believes he can rent each umbrella:r $3,000. To o expenses other than the leasing costs and a feet hoafvse3 to hire anyone (but himself), three- month period doing he work. and he has. no Howe is a college,000 per month to rent the business locate it. a student and if he did not operate this business, he could,000 for the Howe re n s all 50 of his umbrellas on each of these days, what will be his accounting b) What will be his economic profit for the summer? Q2) A book is to be written by Britney Spears. Batman Books agrees to pay Britain executives stated that it was hard to sell more than 500,000 copies o about $ g publisher, Battlialtile king for the rights to this not- yet- written memoir. According to one lead in. d over. On cr Books could earn a profit of roughly $1.2 million if it sold 625,000 COp . . publish a book, and very exceptional to sell 1 million copies. Were Batman managers taking f nonfiction hardcover? a, 1 .3minhar c million. copses other hands, if it sold 375,000 copies, managers would lose a stall- 1 risk in publishing this book?Q3) The Government has various tools available to deal with the Market Failure, the few 0f the tools available to the Government was • Price Profit Regulations• Restrictive Trade policy and practices• Direct Controls or Regulations• Patents and Law of Tort• Subsidy Policy• Tax Policy• Foreign Exchange Policy. Briefly provide your views on all the above to predominantly sustain an Economy in Market forces. Q4) The Abner Corporation, a retail seller of television sets, wants to determine how many television sets it must sell to earn a profit of $12,000 per month. The price of each television set is $300, and the average variable cost is $100. a. What is the required sales volume if the Abner Corporation's monthly fixed costs are $5,000 per month?
A1) Accounting profit is the total amount of revenue earned minus the explicit costs associated with the business. Explicit costs are the actual, direct expenses incurred in running a business, such as the costs of materials and labor. Economic profit, on the other hand, takes into account both explicit and implicit costs, where implicit costs are the opportunity costs associated with running the business. For William's case: The total revenue = 50 umbrellas * $3,000 * 30 days * 3 months = $13,500,000. The total costs = leasing costs + rent + opportunity cost = (50 umbrellas * $5 * 30 days * 3 months) + ($3,000 * 3 months) + ($2,000 * 3 months) = $30,000 + $9,000 + $6,000 = $45,000. a) His accounting profit would be the total revenue - explicit costs = $13,500,000 - $39,000 = $13,461,000. b) His economic profit would be the accounting profit - implicit costs = $13,461,000 - $6,000 = $13,455,000. A2) Publishing a book by a well-known celebrity like Britney Spears carries both potential rewards and risks. The higher the sales, the greater the profit. However, predicting book sales can be challenging. Selling 625,000 copies could bring in a profit of $1.2 million, while selling only 375,000 copies could result in a loss, demonstrating the risk. Therefore, Batman managers are indeed taking a risk in publishing this book. However, with careful marketing and public relations, this risk could potentially be minimized and turn into a lucrative venture. A3) All the tools mentioned are significant strategies for dealing with market failures, and their effective use is critical for maintaining a healthy economy. For instance, Price Profit Regulations can control inflation, Direct Controls or Regulations can ensure fair competition, Patents and Law of Tort can foster innovation, Subsidy Policy can promote key industries, Tax Policy can be used to redistribute income and Foreign Exchange Policy can stabilize the currency value. Ultimately, the choice and application of these tools must be strategic and based on the specific demands and conditions of the economy. A4) For the Abner Corporation, the profit they want to make is $12,000, and the contribution margin per unit sold (price - variable cost) is $200 ($300 - $100). Therefore, the sales volume required to break even is calculated as follows: (Fixed Costs + Target Profit) / Contribution Margin per Unit = ($5,000 + $12,000) / $200 = 85 TV sets; they must sell 85 TV sets per month to achieve a profit of $12,000 given these costs.
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