Question

Hillary starts her own business. She quits her​ $50,000 a year​ job, rents an office for​ $15,000 a​ year, pays wages and salaries of​ $50,000 a​ year, utilities of​ $4,000 a​ year, and materials of​ $20,000. She uses her own car for sales work rather than leasing an equivalent car for​ $6000 a year. If revenues are​ $140,000, her accounting profit and economic profit are respectively ______ and _____ .

Answer 1

accounting profit =$ 51,000

Economic profit = $ 7000

Explanation:

In economic profit we consider opportunity cost opportunity cost is next best alternative for gone.

Economic profit =140,000 - 50,000 - 50,000 - 15,000 - 4000 - 20,000 + 6000

= $ 7000

In accounting profit we do not consider opportunity cost.

hence,

accounting profit = 140,000 - 50,000 - 15,000 - 4000 - 20,000

= $ 51,000