Question

Bill is an economics lecturer who earns $40,000 teaching, but decides to quit his job and fulfill his dream of catering barbecues. during his first year of barbecuing he earned total revenue of $60,000. he spent $30,000 on food and supplies. he also paid his wife $10,000 to help serve food. the normal profit for an entrepreneur running a barbecue business is $3,000. he also rented an industrial grill/fry truck for $12,000. an accountant would conclude that bill's profit was a. $8,000. b. $40,000. c. $30,000. d. $20,000. e. -$2,000.

Answer 1

Bill's accounting profit for his first year running a barbecue business is $8,000. This is calculated by deducting his explicit costs from his total revenue. Implicit costs, including his forgone lecturer salary and the industry's normal profit, are not considered in this calculation.

Step-by-step explanation:

The question is concerning Bill's profit after switching jobs to running a barbecue business. To calculate his accounting profit, we must subtract his explicit costs from his total revenues. His explicit costs include the money spent on food and supplies ($30,000), the salary paid to his wife ($10,000), and the rental for the industrial grill/fry truck ($12,000). Subtracting these costs from his total revenue ($60,000) gives us:

• Total Revenue: $60,000
• Explicit Costs: $30,000 for food and supplies + $10,000 salary + $12,000 truck rental = $52,000
• Accounting Profit: $60,000 - $52,000 = $8,000

Therefore, according to an accountant, Bill's profit would be $8,000. It is important to note that accounting profit doesn't consider implicit costs or normal profit, which in this scenario includes the opportunity cost of Bill's next best alternative, which was his previous salary as an economics lecturer ($40,000) and the normal profit for the business ($3,000).