Question

Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn’t worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Last year, Christine's accounting profit was ______ and her economic profit was ______.

Answer 1

Answer: $49,000; $9,000

Step-by-step explanation:

Given that,

Hired an administrative assistant = $15,000 per year

Rented office space (utilities included) = $3,000 per month

Total revenue for the year = $100,000

She would have worked at a real estate firm earning $40,000 a year

Accounting profit = Total revenue - explicit cost

= 100,000 - (15,000 + 3,000 × 12)

= 100,000 - 51,000

= $49,000

Economic profit = Total revenue - (explicit cost + implicit cost)

= 100,000 - (51,000 + 40,000)

= 100,000 - 91,000

= $9,000