Walter Used to Work as a High School Teacher for $40,000

question 368

Multiple Choice

Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business's profit.

• A)Tyler says his profit is $25,900, and Greg says his profit is $66,500.
• B)Tyler says his profit is $35,000, and Greg says he lost $5,900.
• C)Tyler says his profit is $34,100, and Greg says he lost $6,500.
• D)Tyler says his profit is $34,100, and Greg says his profit is $34,100.

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Definitions:

Reservation Price

The maximum price a consumer is willing to pay for a good or service or the minimum price a seller is willing to accept.

Additional Profit

The increase in profit that results from an additional unit of sale or from adopting a new strategy beyond the normal operations.

Price Discrimination

A pricing strategy where identical or substantially similar goods or services are sold at different prices by the same provider in different markets.

Third-degree Price Discrimination

A pricing strategy where a firm charges different prices to different groups of consumers for the same product, based on their willingness to pay.