Question

Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each. A.) An accountant would calculate the total profit for one photo frame to be

B.) An economist would calculate the total cost for one photo frame to be

Answer 1

$25

$15

Step-by-step explanation:

Accounting profit is total revenue less total cost or explicit cost.

Accounting profit = Revenue - Explicit cost

Economic profit is accounting profit less implicit cost or opportunity cost

Opportunity cost is the cost of the next best option forgone when one alternative is chosen over other alternatives.

In this question, Jessica's opportunity cost is her part time job at the coffee shop.

Total cost for an economist = Explicit cost + implicit cost / opportunity cost = $5 + 10 = $15

Accounting profit = $30 - $5 = $25

I hope my answer helps you