In Year 1 a Contractor Agrees to Build a Building

question 108

Multiple Choice

In year 1 a contractor agrees to build a building for $2,500,000 by the end of year 2.The builder's cost is estimated to be $1,800,000.The actual costs year 1 are $900,000 and year 2's actual costs are $1,100,000.Under the percentage of completion method year 2's gross profit is

• A)$150,000.
• B)$500,000.
• C)$700,000.
• D)$350,000.

---

Definitions:

Short Run

A period in economic theory during which at least one factor of production is considered fixed and cannot be changed.

Resource Suppliers

Entities or individuals that provide the necessary inputs (like raw materials, labor, and capital) for production processes.

Marginal Product

The additional output resulting from the use of one more unit of a production input.

Newly Built Homes

Houses that have been recently constructed and are ready for occupancy, often indicating new developments in housing markets.