Question

Zippy is earning ​$40,000 per year working for​ Joe's Car Repair. He also has savings of ​$100,000​, on which he is earning​ 10% annual interest. He decides to leave​ Joe's Car Repair to invest his savings in starting his own car repair business. In the first​ year, Zippy's Speedy Car Repair earns revenues of ​$200,000 and has explicit costs of ​$150,000. ​Zippy's economic profit​ (or loss) in the first year is?

Answer 1

$0

Step-by-step explanation:

While working at Joe's Car repair,

Total earnings:

= salary + interest

= $40,000 + $10,000

= $50,000

After starting his own business

Earnings:

= Revenue - explicit costs - Savings

= $200,000 - $150,000 - $100,000

= -$50,000

Economic profit (or loss):

= -$50,000 - $50,000

= $0

Therefore, there will be no economic profit or loss.