09.09.2009
Necktie #3
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Economic/normal profit help with Microeconomics?
2.Suppose you have two choices for a job this summer. You can wait tables and earn $3,000 for the summer or you can get an internship with AG Edwards and earn $4,000 for the summer. Except for pay, you are indifferent between the two jobs. If you wait tables, you will have to buy a $20 necktie. If you take the internship, you will have to buy a $300 suit.
a.What is your optimal choice?
b.What is your economic profit? What is your normal profit?
-I'm thinking the internship is the better deal, with an economic profit of ((4,000-300)-(3000-20)) $720, and a normal profit of ((4000-300)-720) $2980. But I'm not sure, help?
In this context economic profit is the amount by which your choice exceeds the opportunity cost of the alternative path. So your numeric answer to b depends on your choice in a
You are correct that the internship is the optimal choice. The normal profit for that choice is is $3,700 (revenue of $4,000 less costs of $300) The opportunity cost for taking the internship is what you would have made waiting tables, $2,980. The difference is the economic profit or $720.
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