Part 1: After becoming an Uber driver, Michael decided to work out how many hour
ID: 1143372 • Letter: P
Question
Part 1: After becoming an Uber driver, Michael decided to work out how many hours he should drive to maximise his profit.
Which of the following statements is true? (one answers)
Michael will make a normal profit if his accounting profit is positive and his economic profit is negative.
Fuel, wear and tear, and other car-related costs are Michael’s implicit costs.
From an economics perspective, Michael should continue driving indefinitely for Uber even if his implicit costs are not being recovered.
When calculating accounting profits, Michael should not include explicit costs.
When calculating economic profits, Michael should include both explicit and implicit costs.
Part B: Luke is a talented netball player who earns $2,000/week to play professionally, with travel expenses being $500/week. He was recently offered the chance to play basketball professionally and earn $1,300/week with no travel expenses. He chose to continue playing netball.
Which of the following statements are true: (More than one answer can be right)
Luke's accounting profit playing netball is $1,500/week.
In choosing to play netball rather than basketball, Luke is earning a normal profit.
Luke's economic profit from choosing to continue playing netball is $200/week.
An economist would agree with Luke's decision to continue playing netball.
a.Michael will make a normal profit if his accounting profit is positive and his economic profit is negative.
b.Fuel, wear and tear, and other car-related costs are Michael’s implicit costs.
c.From an economics perspective, Michael should continue driving indefinitely for Uber even if his implicit costs are not being recovered.
d.When calculating accounting profits, Michael should not include explicit costs.
e.When calculating economic profits, Michael should include both explicit and implicit costs.
Explanation / Answer
1).
Consider the given problem here “Michael” is an “Uber driver” want to decide optimum hours should devote to driving. The “E” option is true.
=> “Economic cost” take into account the “implicit” as well as the “explicit” cost.
2).
So, here as we know that “accounting cost” only take “explicit cost” but not “implicit cost”, => accounting profit of playing “net ball” is “2000-500=1500 per week”.
Now, “economic profit” take both the “implicit” as well as the “explicit” cost”. So, here the opportunity cost of playing “net ball” is “1300 per week” as “Luke” will not able to play “baseball”, => here the implicit cost of playing “net ball” is “1300”, => the “economic profit” is given by as follows.
=> 2000 – 1300 – 500 = 200 per week, => “A” and “C” are correct answers.