Reference no: EM132240691

Question 1

Maria was earning €100,000 a year working at a bank. She decided to start her own financial consultancy business. She used €500,000 in savings that earned 5% interest annually to finance the new business. In the first year, the firm earned revenue of €1,500,000. The costs for rent, supplies, and payroll were €1,100,000. What was the accounting profit for the new business? What was the economic profit (or loss)? What does the economic profit (or loss) imply? Explain your calculations for both questions.

Question 2

John runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently €1 per poster. He has fixed costs of €250. His variable costs are €1,000 for the first thousand posters, €800 for the second thousand, and then €750 for each additional thousand posters.

(a) What is his AFC per poster (not per thousand!) if he prints 1000 posters? 2000? 10,000?

(b) What is his ATC per poster if he prints 1000? 2000? 10,000?

(c) If the market price fell to €0.70 per poster, would there be any output level at which John would not shut down production immediately?