Sound Device

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 2010, the owner of Sound Devices could have earned 15% return by investing in stocks of other new businesses with risk levels similar to the risk level of Sound Devices.

a. What are total explicit costs (including taxes) for Sound Devices in 2010?

The total explicit cost is “payments by a firm to purchase the service of productive resources (wages, interest, rent, capital)” (Antnio, n.a.). Sound Devices total explicit cost with taxes includes cost of products and services sold, selling expenses, administrative expenses and income taxes, that equals to $355,000 + $155,000 + $45,000 + $165,000 = $725,000 in total explicit cost.

b. What is total implicit in 2010?

The total implicit cost is the cost the engineer is giving up if he did not follow his dreams in the audio business. To total implicit cost is $175,000

c. The economic cost for 2010 is explicit cost + implicit cost = $725,000 + $175,000 = $900,000

The accounting profit in 2010 is revenues from sales of products and services - Total operative costs and expenses = $970,000 - $555,000 = $415,000

e. The economic profit is total revenue – economic cost = $970,000 - $900,000 = $70,000

2. Florida Citrus Mutual, an agricultural cooperative association for citrus growers in Florida, needs to predict what will happen to the price and output of Florida oranges under the conditions below. What are your predictions? For each part, sketch a graph showing the appropriate demand and supply analysis.

a. A major freeze destroys a large number of the orange trees in Florida.

The output would decrease because of the damage to the trees. This results in a price increase for the oranges.

b. The scientists in the agricultural extension service of the University of Florida dis-cover a way to double the number of oranges produced by each orange tree.

Doubling the production output...