Question

Martin Co purchased land as a factory site for $400,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. What was the total cost of tearing down the old buildings and constructing the factory?

1) $400,000
2) $200,000
3) $600,000
4) $800,000

Answer 1

Without additional information on demolition and construction costs, the total cost of tearing down the old buildings and constructing the factory cannot be determined from the purchase price of the land alone. Likewise, the firm's economic profit from Exercise 7.1 cannot be calculated without knowing the accounting profit to subtract the opportunity cost, which includes the potential $30,000 rental income from the land.

The correct answer is 1).

Step-by-step explanation:

To determine the total cost of tearing down the old buildings and constructing the factory, we need to know the costs incurred for both demolition and construction. However, the provided information only gives us the purchase price of the land, which is $400,000.

The question does not provide the additional cost for tearing down the buildings and constructing the new factory. Thus, with the information given, it is impossible to accurately answer what the total cost would be without assuming or having further details on the additional costs.

Regarding the firm's economic profit from Exercise 7.1, it would be calculated by taking the accounting profit and subtracting the opportunity costs, which include the potential rental income from the land ($30,000 per year).

If the accounting profit is not provided in the context, it would not be possible to determine the economic profit without additional information.