Question

Thomas sets up a new coffee shop in a building he owns. He puts $200,000 of his money into the business. He could have got 8% interest on this money if he had deposited it in an investment account. He gives up his job, which paid him $50,000 a year. He could rent the building out for $10,000 a year.

His business incurs explicit costs of $80,000 (excluding any salary for himself).

Based on the information above, choose the correct answer for each of the following questions.

What is his economic profit if revenues are $180,000?
His revenues are $80,000 in year 1. What is his economic profit?

Answer 1

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