Question

suppose charlie brown opens a lemonade stand. he hires linus and lucy for $12 a week($6 each). he rents pitchers and spoons from his mother for $5 a week and spends $20 a week on paper cup,lemons,sugar and other materials.before he opened the stand, he was earning$15 a week selling newspapers. he grosses $72 in revenues a week from lemonade sales. calculate accounting costs, economic costs,accounting profit and economic profit. evaluate how charlies lemonade business is doing.

Answer 1

Answer on Question #40618 – Economics – Microeconomics

Assignment

Suppose Charlie Brown opens a lemonade stand. He hires Linus and Lucy for $12 a week ($6 each). He rents pitchers and spoons from his mother for $5 a week and spends $20 a week on paper cup, lemons, sugar and other materials. Before he opened the stand, he was earning $15 a week selling newspapers. He grosses $72 in revenues a week from lemonade sales. Calculate accounting costs, economic costs, accounting profit and economic profit. Evaluate how Charlies lemonade business is doing.

Solution

$12 ($6 each) - salary,

pitchers and spoons - $5,

$20 - materials.

$15 - selling newspapers before,

$72 - revenues.

Accounting costs = all explicit costs = 12 + 5 + 20 = $37 a week

economic costs = explicit costs + implicit costs = 37 + 15 = $52 a week

accounting profit = revenue - accounting costs = 72 - 37 = $35 a week

economic profit = revenue - economic costs = 72 - 52 = $20

So, as his profit is higher, than his salary before, his business is doing good.