Carol quit her job at
Microsoft where she earned $50,000 a year. She cashed in $50,000 in
corporate bonds that earned 10% interest annually to buy a
mini-bus. Carol has decided to buy the mini-bus and set up a
commuter service between LA and San Francisco. There are 1000
people who will pay $400 a year each for the commuter service; $280
from each person goes for gas, maintenance, insurance, and
depreciation. She estimates that her entrepreneurial skills would
have typically yielded a normal profit of $5,000 in another
business.

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Question: Carol quit her job at Microsoft where she earned $50,000 a year. She cashed in $50,000 in corpora…
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a.           
Complete the following: (i) What are Carol’s total
revenues? (ii) What are Carol’s explicit costs? (iii) What is her
accounting profit?

b.           
List the important implicit costs that Carol has
not included.

c.           
What is Carol’s economic profit (loss)?

Your answers should be
fully justified and all necessary calculations
shown.

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