One former MSU student decided to open a lawn service andlandscaping company.           Duringthe first year, she paid rent of $5,000, wages to employees of$50,000, and $10,000           forsupplies (gas, oil, and so on). To start this business, she quither previous job that had paid her $40,000 per year. Her motherinvested $10,000 in the business, which was used to          acquireequipment. The company earned $106,000 in revenue in the firstyear.

3i.        The privateexplicit cost in the first year is

           ____________________

3ii.       If the averageinvestment in the economy earned a 10% return this year, implicitprivate cost           forthis business is

           ____________________

3iii.      Which is a correct statementabout the economic profits of the business in the first year?

           a.         If the averageinvestment in the economy earns a 10% return, economic profits were                                 zero.

           b.         The investor in thisbusiness earned a 10% return on investment in the first                                     year.

.           c.        This lawn/landscapingbusiness would have had negative economic profits if the                            average investment in the economy generated a 15% return thatyear.

           d.         All of the above arecorrect.

           e.         None of the above iscorrect.

3iv.      Suppose the state governmentlevied an “environmental tax” on this lawn/landscape business equalto $1,000 per year. The effect of the tax is to

           a.         increase the firm’saverage cost, but not the marginal cost.

           b.         increase privateimplicit cost.

           c.         increase variablecost, but not fixed cost.

           d.         increase social cost,but not private cost.

           e.         have no effect oncost.