Joe runs a small boat factory. He can make ten boats per year and sell them for $35,000 each. It costs Joe $250,000 for the raw materials (fiberglass, wood, paint, and so on) to build the ten boats. Joe has invested $500,000 in the factory and equipment needed to produce the boats: $200,000 from his own savings and $300,000 borrowed at 10 percent interest (assume that Joe could have loaned his money out at 10 percent, too).Joe can work at a competing boat factory for $60,000 per year.
a. What is the total revenue Joe can earn in a year?
b. What are the explicit costs Joe incurs while producing ten boats?
c. What are the total opportunity costs of producing ten boats (explicit and implicit)?
d. What is the value of Joe's accounting profit?
e, What is the value of Joe's economic profit?
f. Is it truly profitable for Joe to operate his boat factory? Explain.