Name: L Thnh Danh

MSSV: 21141023597
7. It is estimated that over 100,000 students will apply to the top 30 M.B.A. programs in the
United States this year.
a. Using the concept of net present value and opportunity cost, explain when it is rational
for an individual to pursue an M.B.A. degree.
b. What would you expect to happen to the number of applicants if the starting salaries of
managers with M.B.A. degrees remained constant but salaries of managers without such
degrees decreased by 20 percent? Why?
Solution:
a. The net present value of students application of top 30 M.B.A programs in USA is the
value of benefits which these students are received from attending school minus the
opportunity cost of attending school instead of doing something else. The rational for an
individual to pursue an M.B.A degree when students net present value is higher than the
opportunity cost or their net present value is higher than zero.
b. If the salaries of managers with M.B.A degrees remained constant in while none- degrees
managers decreased by 20 percent, it will be increased the present value of students
application and decreased the opportunity cost of getting M.B.A. Therefore, the number
of applicants would expect more students to apply.
8. Jaynet spends $30,000 per year on painting supplies and storage space. She recently
received two job offers from a famous marketing firmone offer was for $110,000 per
year, and the other was for $80,000. However, she turned both jobs down to continue a
painting career. If Jaynet sells 25 paintings per year at a price of $8,000 each
a. What are her accounting profits?

b. What are her economic profits?

Solution:
a. Her accounting profits are ( 25* $8,000)- 30.000= $170,000. There are $200,000
revenues and $30,000 expense costs
b. If Jaynet is still working as a painter, she will give up $110,000 which she could earned
by working as marketer. So her economic costs are $110,000 + $30,000 ( expense costs)
= $140,000 and her economic profits are $200,000 - $140,000 = $60,000
14. Jamie is considering leaving her current job, which pays $75,000 per year, to start a
new company that develops applications for smart phones. Based on market research, she
can sell about 50,000 units during the first year at a price of $4 per unit. With annual
overhead costs and operating expenses amounting to $145,000, Jamie expects a profit
margin of 20 percent. This margin is 5 percent larger than that of her largest competitor,
Apps, Inc.
a. If Jamie decides to embark on her new venture, what will her accounting costs be during
the first year of operation? Her implicit costs? Her opportunity costs?
b. Suppose that Jamies estimated selling price is lower than originally projected during the
first year. How much revenue would she need in order to earn positive accounting profits?
Positive economic profits?
Solution:
a. Her accounting costs are $145,000 per year in overhead cost and operating expenses. The
implicit costs are her current jobs salaries $75,000. Her opportunity costs are $145,000+
$75,000= $220,000.
b. To earn positive acconting profits, the revenue per year must be higher than $145,000. To

earn the positive economic profits, the revenue per year must be greater than $220,000.