Explain the relationship between a firm’s output and costs in the
short run.
Derive and explain a firm’s long-run average cost curve.
Joe runs a shoe shine stand at the airport. Joe has no skills, no job experience,
and no alternative job. The return to entrepreneurship in the shoe shine
business is $10,000 a year. Joe pays the airport rent of $2,000 a year, and his
total revenue from shining shoes is $15,000 a year. He spent $1,000 on a
chair, polish, and brushes and paid for these items using a loan that has an
interest rate of 20 percent a year. At the end of one year, Joe was offered $500
for his business and all its equipment. Calculate Joe’s annual explicit costs,
implicit costs, and economic profit from his shoe shine business.