###### When the price of Starbucks coffee increased by 8 percent, the quantity demanded of Peet’s coffee increased by 10 percent.
September 3, 2020
###### Let’s say that a clothing retailer currently oers a very strict return policy.
September 3, 2020

1. Dane decides to give up a job earning \$200,000 per year as a corporate lawyer and converts a

duplex he owns into a UFO museum. The market rent for a similar duplex is \$20,000 a year. He

pays wages of \$75,000 a year to his assistants and \$10,000 a year for utilities. Fans flock to the

museum to see his collection of extraterrestrial paraphernalia. Over the course of the year, the

museum brings in revenues of \$200,000.

Use the information above to answer the following questions. [Hint: ignore that value of Dane’s

extraterrestrial paraphernalia]

a. Calculate Dane’s accounting profits [5 points]

b. Calculate Dane’s economic profits [5 points]

c. Based on the performance of the museum in this one year, should Dane have quit his job as

a corporate lawyer? Briefly explain why or why not. [5 points]

2. Suppose an assistant professor of economics is earning a salary of \$75,000 per year. One day,

she quits her job, sells \$100,000 worth of bonds that had been earning her 3 percent per year,

and uses the funds to open a bookstore. At the end of the year, she shows an accounting profit

of \$80,000. What is her economic profit? [show all your work] [5 points]