An employee working for Best Buy decides to stop working and start his own computer repair...

An employee working for Best Buy decides to stop working and start his own computer repair business. He enjoys an accounting profit in his first year of running the business. Which of these statements is correct?

A. His accounting profit and economic profit will be the same.

B. His accounting profit will be smaller than his economic profit.

C. His accounting profit will be larger than his economic profit.

D. More info is needed to know how His accounting profit will compare to his economic profit.

Solutions

Expert Solution

C. His accounting profit will be larger than his economic profit.

Accounting profit = Total Revenue - Explicit Cost

Explicit cost is the cost which occurs in running of the business including fixed and variable costs

Economic profit = Total Revenue - Explicit Cost - Implicit Cost

Implicit cost is the cost which is implied and it is subject to the other opportunity given up (which in this case would be the salary from working at Best Buy)

Since Economic profit = Accounting Profit - Implicit cost

A positive value will be deducted from accounting profit , it will be that accounting profit is larger than economic profit

Rahul Sunny answered 2 years ago

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