Question

Joe runs a restaurant. He pays his employees $200,000 per year. His ingredients cost him $50,000 per year. Prior to running his restaurant, Joe was a lawyer earning $150,000 per year. If Joe's restaurant earns $600,000 per year in revenue, Joe's accounting profits are ________ and his economic profits are __________.

Answer 1

Accounting profit= $350,000

Economic profit= $200,000

Step-by-step explanation:

Giving the following information:

Restaurant:

Earnings= 600,000

Employees= (200,000)

Ingridients= (50,000)

Lawyer:

Earnings= 150,000

The difference between the economic and accounting profit is that the first one includes the opportunity cost of not working as a lawyer.

Accounting profit= 600,000 - 250,000= $350,000

Economic profit= 600,000 - 250,000 - 150,000= $200,000