Question

last year, jarod left a job that pays $60,000 to run his own bike-repair shop. jarod’s shop charges $65 for a repair, and last year the shop performed 3,000 repairs. jarod’s production costs for the year included rent, wages, and equipment. jarod spent $50,000 on rent and $100,000 on wages for his employees. jarod keeps whatever profit the shop earns but does not pay himself an official wage. jarod used $20,000 of his savings to buy a machine for the business. his savings were earning an annual interest rate of 5 percent.

Answer 1

Answer: Accounting profit=$90,000 and Economic profit loss= $28,500

Explanation:

Accounting profit = Total revenue - Explicit costs Accounting profit = ($65 × 4,000) - ($50,000 + $120,000) Accounting profit = $260,000 - $170,000 Accounting profit = $90,000

Economic profit = Total revenue - (Explicit costs + Implicit costs) Economic profit = ($65 × 4,000) - ($50,000 + $120,000 + Forgone interest on savings + Forgone wages) Economic profit = ($65 × 4,000) - [$50,000 + $120,000 + (0.06 x $25,000) + $60,000] Economic profit (loss) = $28,500