Question

Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labour. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each.

1.What are Wanda's explicit costs per glass?
2.What are Wanda's implicit costs per glass?
3.What are Wanda's total economic costs per glass?
4.What are Wanda's total accounting profits?
5.What are Wanda's total economic profits?

Answer 1

Explicit cost per glass = $0,08

Implicit cost per glass = $0.10

Economic cost per glass = $0.18

Total Economic profit = $96

Total Accounting profit = $126

Step-by-step explanation:

Explicit cost is the total cost incurred in production of the lemonade

Explicit cost = $0.01 + $0.02 + $0.02 + 0.03 = $0.08

Implicit cost is the cost of the next best option forgone when one alternative is chosen over other alternatives. It is also known as opportunity cost

Her implicit cost is $0.10

Economic cost is the sum of explicit cost and implicit cost

Economic cost = Explicit cost + implicit cost

$0.08 + $0.10 = $0.18

Accounting profit is total revenue less total cost

Accounting profit = Total revenue - Total cost

(0.50 - 0.08) × 300 = $126

Economic profit is accounting profit less implicit cost or opportunity cost.

Economic profit = Accounting profit - Implicit costs

$126 - ($0.1 × 300) = 126 - $30 = $96

I hope my answer helps you