10. The Costs of Production

Fast Fingers Freddy gives banjo lessons for \$50 per hour. One day, he spends 8 hours planting \$100 worth of seeds on his farm. If the seeds yield \$600 worth of crops, what is his accounting profit and economic profit?

Ricky Smooth opens up a hunch punch stand in his dorm room every Wednesday for two hours. He spends \$40 on ingredients and sells \$120 worth of hunch punch. In those same two hours, Ricky could have been a nude model for the art department earning \$60. Ricky Smooth has an accounting profit of ________ and an economic profit of ________.

Sweetie Nick has dreamt of owning a candy store his whole life. Unfortunately, after a few wrong turns, Sweetie Nick finds himself stuck in a job he hates, earning a nice salary of \$100,000, but he is completely dead inside. One day, Sweetie Nick is fed up and decides to quit his job and open a candy store. He takes his \$300,000 savings, which were earning 5% interest, and buys a property downtown. In his first year, Sweetie Nick sells \$220,000 worth of candy that he purchased for \$80,000. He also paid utilities of \$2,000 and hired a cashier that earned \$16,000 throughout the year. What is Sweetie Nick's accounting profit and economic profit?

A short run cost function assumes that: