Question

Joe quits his computer programming​ job, where he was earning a salary of ​$65 comma 000 per​ year, to start his own computer software business in a building that he owns and was previously renting out for ​$28 comma 000 per year. In his first year of business he has the following​ expenses: salary paid to​ himself, ​$40 comma 000​; ​rent, $0; and other​ expenses, ​$30 comma 000. Find the accounting cost and the economic cost associated with​ Joe's computer software business. ​(Enter numeric responses using an integer.​)

Answer 1

The answer is:

1. Accounting costs $70,000
2. Economic costs $163,000

Step-by-step explanation:

The accounting costs or Joe's new software company are:

• Salaries $40,000
• Other expenses $30,000
• Total accounting costs $70,000

The economic costs of Joe's new software company include accounting costs plus opportunity costs:

• Total accounting costs $70,000
• Opportunity cost of Joe's lost salary $65,000
• Opportunity cost of building's rent $28,000
• Total economic costs $163,000