Question

Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she withdrew $20,000 from her savings, which earned 5 percent interest. She also turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business?

a.$-56,000
b.$-6,000
c.$4,000
d.$19,000

Answer 1

C) $4,000

Step-by-step explanation:

To determine Jacqui's economic profit we can use the following formula:

• economic profit = accounting profit - implicit costs

implicit costs = opportunity costs, in Jacqui's case they include lost wages and lost interest

Jacqui's economic profit = $50,000 - [($20,000 x 5%) + $45,000] = $50,000 - $46,000 = $4,000