The desire to maximize profits can work against racial and other types of discri
ID: 1219449 • Letter: T
Question
The desire to maximize profits can work against racial and other types of discrimination. To see this, consider two equally productive accountants named Ted and Jared. Ted is black, and Jared is white. Both can complete 10 audits per month.
a. Suppose that for any accounting firm that hires either Ted or Jared, all the other costs of performing an audit (besides paying either Ted or Jared) come to $1,100 per audit. If the going rate that must be paid to hire an accountant is $9,000 per month, how much will it cost an accounting firm to produce one audit if it hires either Ted or Jared to do the work?
$____________
b. If the market price that accounting firms charge their clients for an audit is $2,200, what would the accounting profit per audit be for a firm that hired either Ted or Jared?
$ _______ per audit.
What is the profit rate as a percentage?
_________ %
Instructions: Round your answer to 1 decimal place.
__________ percent.
c. Suppose that firm A dislikes hiring black accountants, while firm B is happy to hire them. So Ted ends up working at firm B rather than firm A. If Ted works 11 months per year, how many audits will he complete for firm B each year?
__________ audits
How much in accounting profits will firm B earn each year from those audits?
$___________
d. Because firm A passed on hiring Ted because he was black, firm A is forgoing the profits it could have earned if it had hired Ted. If the firm is willing to forgo up to $12,000 per year in profit to avoid hiring blacks, by how many dollars will firm A regret its decision not to hire Ted?
$_______
Explanation / Answer
Total cost of an Audit = Cost of accountant per audit + other expenses
=(9000/10) + 1100 =2000
Profit= Revenue-Cost
= 2200-2000
=200
Profit rate=200/2000
=10%
10%
C)
Ted's total Audits=10X11=110
Accounting profit=200X110=22000
d)
Regret in profit=22000-12000=$10000