EXERCISES Chapter 1/1: ECO 556/558

Q6 Apr 02
Encik Zulkifly has a choice either to continue employment as a teacher or earning a
salary of RM50,000 per year or to start his own business retail business. Given below are
the estimated monthly revenue and costs if he starts his business:
Revenue RM3,500
Cost of material RM850
Staff salary RM625
Rental RM1000

The amount of capital required to start the business is estimated to be RM120,000 of

which half would be drawn from Encik Zulkifly’s savings account in the bank and the
balance would be borrowed from Bank Pembangunan Bhd. The current interest rate on
savings is 4% and the interest rate on loans is 8%.

a. Distinguish between economic profit and accounting profit.

b. Compute the accounting profit.
c. Compute the economic profit.
d. Would you advise Zulkifly to quit his job employment as a teacher
to start his own business? Why?

Q3 Apr 01
Rais manages a laundry for someone else and earns RM30,000 per year. He decides to
open his own laundry. Revenue during the first year of operation is RM100,000 and
expenses are RM35,000 for salaries, RM10,000 for supplies, RM8,000 for rent, RM2,000
for utilities and RM5,000 for interest on bank loan. Calculate:
a) Explicit cost
b) Implicit cost
c) Accounting profit
d) Economic profit
e) Indicate whether the laundry firm should remain open.

Q4 Apr 01
a) Managerial economics is often said to help the student integrate the knowledge
gained in other courses. How is this integration accomplished?

Answer
Managerial economics is an interdisciplinary & integrative course for it draws on
elements of accounting, finance, statistics, quantitative & analytical tools.

b) How is the concept of normal profit related to the distinction between accounting
and economic profit?

Answer
Normal profit in term of accounting is total revenue minus total cost which is only the
explicit cost; whereby in term of economic, total revenue minus total cost which
consists of explicit cost plus implicit cost.

Exercises Chapter 1/1: