You leave your $50,000 a year job and invest your savings of $40.000 (on which you were earning 10 percent annual interest) to start your own business

You leave your $50,000 a year job and invest your savings of $40.000 (on which you were earning 10 percent annual interest) to start your own business. In the first year, your business generated $100,000 in total revenue and had to pay $40,000 in explicit costs. The economic profit generated by this gym was

a $60,000

b. $6,000

c. greater than your accounting profit because economic profit is always greater than accounting profit.

d. $10,000

Expert Solution

Accounting profit =total revenue - explicit costs
=100000-40000
=60000
Economic profit =accountig profit - implicit costs
implict costs = salary of the best alternative =the job left =$50000
Interest on the investments =40000*0.1=$4000
Total implicit costs =50000+4000=54000
Economic profit =60000-54000
=$6000
the economic profit is $6000
Option b

Rahul Sunny answered 2 years ago

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