Question

Joe quits his computer programming​ job, where he was earning a salary of ​$60 comma 00060,000 per​ year, to start his own computer software business in a building that he owns and was previously renting out for ​$21 comma 00021,000 per year. In his first year of business he has the following​ expenses: salary paid to​ himself, ​$47 comma 50047,500​; ​rent, $0; and other​ expenses, ​$10 comma 00010,000. Find the accounting cost and the economic cost associated with​ Joe's computer software business. ​(Enter numeric responses using an integer.​)

Answer 1

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

Joe quits his computer programming​ job, where he was earning a salary of ​$60,000 per​ year.

Previous rent= $21,000 per year.

In his first year of business he has the following​ expenses:

salary paid to​ himself= ​$47,500​; ​

Other​ expenses= ​$10,000.

The difference between the economic profit and accounting profit is that the first one takes into account the opportunity cost. Meaning, the decrease in income caused by quitting the job and stop renting the building.

Economic cost and profit:

Cost= other expenses + opportunity cost

Cost= 10,000 + 60,000 + 21,000= $91,000

Income= Gain from the new business - opportunity cost

Income= (47,500 - 10,000) - 60,000 - 21,000= -$43,500

Accounting cost and profit:

Cost= 10,000

Income= Gain from the new business

Income= 47,500 - 10,000= $37,500