solution

William Howe must decide whether to start a business renting beach umbrellas

at an ocean resort during June, July, and August of next summer. He believes

he can rent each umbrella to vacationers at $5 a day, and he intends to lease 50

umbrellas for the three-month period for $3,000. To operate this business, he

does not have to hire anyone (but himself), and he has no expenses other than

the leasing costs and a fee of $3,000 per month to rent the business location.

Howe is a college student, and if he did not operate this business, he could

earn $4,000 for the three-month period doing construction work.

a. If there are 80 days during the summer when beach umbrellas are

demanded and Howe rents all 50 of his umbrellas on each of these days,

what will be his accounting profit for the summer?

b. What will be his economic profit for the summer?