Solution for Managerial Economic

MS6404 Managerial Economics

Student Name: Shiva Hajigholizadeh ID: g5671028

Assignment 1:

At the beginning of the year, an audio engineer quit his job and gave up a salary of $175,000 per year in order to start his own business, Sound Devices, Inc. The new company builds, installs, and maintains custom audio equipment for businesses that require high quality audio systems. A partial income statement for Sound Devices, Inc., is as follow:

Year 2012

Revenue from sales of product and service $ 970,000

Total operating cost and Expenses 555,000

Income from operation 415,000

Interest expenses (bank loan) 45,000

Legal expenses to start business 28,000

Income taxes 165,000

Net income 177,000

To get started, the owner of Sound Devices spent $100,000 of his personal savings to pay for some of the capital equipment used in the business. In 2012, the owner could have earned 15% return by investing is stocks of other new businesses with risk levels similar to risk level at Sound Devices.

a. What are the total explicit, total implicit, and total economic costs in 2012?

* Explicit costs = total operating costs and expenses = $555,000

* Implicit costs = 100,000 * 15% = $15,000

- Total economic costs = explicit cost + implicit costs = 555,000 + 15,000 = $570,000

b. What is accounting profit in 2012?

Accounting profit...