Rajiv lives in Houston and runs a business that sells pianos. In an average year, he receives $851,000 from selling pianos. Of this sales revenue, he must pay the manufacturer a wholesale cost of $476,000; he also pays wages and utility bills totaling $281,000. He owns his showroom; if he chooses to rent it out, he will receive $71,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Rajiv does not operate this piano business, he can work as an accountant, receive an annual salary of $34,000 with no additional monetary costs, and rent out his showroom at the $71,000 per year rate. No other costs are incurred in running this piano business.

a. What are Rajiv's explicit costs of selling pianos?

1. The salary Rajiv could earn if he worked in an accounting firm.
2. The wages and unitilty bills that Rajiv pays.
3. The wholesale cost for pianos that Rajiv pays the manufacturer.
4. The rental income Rajiv could receive per year if he chose to rent his showroom out.

b. What is the accounting profit of Rajiv's piano business?

1. $780,000
2. $65,000
3. $40,000
4. $-40,000 ($40,000 accounting loss)
5. $110,000

c. What is the economic profit of Rajiv's piano business?

a. $65,000
b. $40,000
c. $780,000
d. $-40,000 ($40,000 economic loss)
e. $110,000

a. The explicit cost of selling pianos would involve the wages & salaries expense and the wholesale cost that he pays the manufactured. These are considered as actual and would be added in the accounting

b. The accounting profit would be

Accounting profit is

= revenue - explicit cost

= $851,000 - $476,000 - $281,000

= $94,000

this is the answer and the options that are given are wrong

c. The economic profit would be

= Accounting profit - opportunity cost

= $94,000 - $34,000 - $71,000

= -$11,000

this is the answer and the options that are given are wrong