Final answer:
To analyze the profitability of a law office, one must calculate explicit costs and subtract them from revenues to determine accounting profit. In the given example, explicit costs amount to $85,000 and revenues to $200,000, yielding an accounting profit of $115,000.
Step-by-step explanation:
Understanding a Law Office's Operations and Profitability
When assessing the profitability of opening a law office, as demonstrated in the question, it is crucial to undertake a financial analysis. This inquiry falls under the category of business, specifically relating to accounting and financial decision-making for law practice operations.
Calculating Accounting Profit
Initially, one must calculate the explicit costs which include expenses like office rental and employee salaries:
Office rental: $50,000
Law clerk's salary: $35,000
Total explicit costs: $85,000.
Next, to determine the accounting profit, the explicit costs are subtracted from the revenues, as follows:
Revenues: $200,000
Explicit costs: -$85,000
Accounting profit = Revenues - Explicit Costs = $200,000 - $85,000 = $115,000.
If the accounting profit is positive, as it is in this example, the law office could be considered profitable in terms of accounting profit. However, this does not account for implicit costs, such as the opportunity cost of the owner's time or other potential investments.