Question

2) Raj opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor’s lawn for $40. Raj has an accounting profit of ____, and an economic profit of ______.

a) $50, $10
b) $90, $50
c) $10, $50
d) $50, $90

Answer 1

a, $50, $10

Step-by-step explanation:

Given that:

• Revenue: $60
• Explicit cost: $10
• Opportunity cost: $40

So, accounting profit has the following formula:

Revenue - Explicit cost

$60 - $10 = $50

• Economic profit has the following formula:

Accounting profit - Opportunity cost

$50 - $40 = $10

We choose a, $50, $10

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