Question

Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. To receive a normal profit, the firm described above would have to___________.

Answer 1

The firm earns revenues of $360,000 per year. To receive a normal profit, the firm described above would have to earn additional revenue of $90,000

Step-by-step explanation:

As per the information provided in the question, the current profit/loss after deducting all expenditure from income is as follows:

Particular Amount ($)

Revenue 360,000

Less: Wages and Salaries (200,000)

Less: Materials (75,000)

Less: New Equipment (30,000)

Less: Rented Property (20,000)

Less: Interest Costs (35,000)

Profit/Loss 0

As confirmed from the calculation above currently no profit is being earned even after the owner/manager not receiving income from the firm. Therefore, the firm should generate additional revenue of $90,000 in order to earn normal profit.