Sarah owns and runs a house cleaning business. Indicate whether her business incurs a cost (and what type of cost) in each of the following cases: 1. She uses her business account to pay employee wages: [Select] ? 2. She quit another job to run the business and decided not to pay herself a salary to save on expenses: [Select] ? 3. She uses her own savings to finance her business expenditures to avoid borrowing money and paying interest to the bank: [Select] ? 4. She uses her own car to travel to clients. She receives a monthly payment from the business account for that use: [Select] ? 5. She likes drinking Starbucks coffee every day. She uses her own funds to buy Starbucks coffee during work hours: [Select] ?
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Suppose that Juanita is deciding whether or not to buy a pair of sneakers that she has been researching online, and also the best place to make her purchase. Three different stores in the area sell the sneakers she likes, but some stores are more convenient for Juanita to reach than others. One option is her local shoe store located only 15 minutes away from where she works, where they charge a marked-up price of $112 for the sneakers: Marked-up price Discounted price Juanita's office Original price Travel Time Each Way (Minutes) Price of a Sneakers (Dollars per sneakers) Store Local Shoe Store 15 112 Different Neighborhood in Town 30 103 Rural Outlet 60 73 Juanita earns an hourly wage of $58 at her job. In order to purchase her sneakers she will have to take time off work, so each hour away from her job costs her $58 in lost income. Assume that Juanita's travel time is the same each way (to and from the store) and that it will take her 30 minutes once she reaches a store to complete her shopping. Assume throughout the question that Juanita incurs no additional costs other than the sneakers, such as gas. Complete the following table by computing the opportunity cost of Juanita's time and the total cost of shopping at each location. Store Opportunity Cost of Time (Dollars) Price of a Sneakers (Dollars per sneakers) Total Cost (Dollars) Local Shoe Store 112 Different Neighborhood in Town 103 Rural Outlet 73 Assume that Juanita considers both her opportunity costs and the price of sneakers when making her shopping decision. Juanita will minimize her cost of buying the sneakers if she shops at the
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Kevin has worked in a retail toy store for 8 years. Last year, Kevin’s wages were $55,000. Lately, Kevin has been unhappy with the shop’s owner. Convinced that he could run a toy store better at a lower cost, Kevin decided to go into business for himself and opened up Toys 4 U. To get the business going, Kevin decided to invest heavily in advertising. He spent $12,000 on advertising aimed at consumers. Kevin also purchased computers, printers, and other equipment needed for his retail store for $6,000. He estimated that the equipment he purchased can be used for about five years before maintenance costs would be too high and they would need to be replaced. All equipment is estimated to be worth 10% of their original cost at the end of their life. At the end of the first year of business, Kevin had received $150,000 in cash from customers, of which $10,000 was cash paid in advance for pre-ordered toys. A review of Kevin’s checkbook shows he paid the following (in addition to those mentioned previously) during the first year of business: Toys Merchandise Inventory $70,000 Supplies $8,000 Wages—part-time assistant $12,500 Rent $15,000 Insurance (two-year policy) $3,200 Utilities $2,500 Miscellaneous expenses $1,500 Kevin’s utility bill for the last month of the fiscal year was $300. He has not recorded the bill and plans to pay it in the next 30 days. At the end of the year, about $26,000 of toys inventory purchased during the year was in his store stock. In addition, $2,000 in supplies had not been used. Kevin’s corporate income tax rate is 30%.
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