Question

Bessie wants to calculate the accounting and economic profits of her cattle farm in Nebraska. She pays $30,000 per year in overhead, $80,000 in wages, and $20,000 in insurance. She forgoes $30,000 per year that she could make as a teacher. If her total revenue equals $140,000, that means her accounting profit is _____ and her economic profit is _____.a. $10,000; -$20,000 b. -$10,000; -$10,000 c. $30,000; -$30,000 d. $60,000; $30,000

Answer 1

a. $10,000; -$20,000

Step-by-step explanation:

Accounting profit is total revenue less total 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.

Total cost = $30,000 + $80,000 + $20,000 = $130,000

Accounting profit = $140,000 - $130,000 = $10,000

If Bessie didn't start her farm, she would be working as a teacher. thus, her opportunity cost is what she would have been earning as a teacher which is $30,000.

Her economic profit = $10,000 - $30,000 = $-20,000

I hope my answer helps you