Question

Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. At the end of the first year of operating his new business, Victor’s accountant reported an accounting profit of $150,000. What was Victor’s economic profit?

Answer 1

the economic profit of Victor is -$25,000

Step-by-step explanation:

The computation of the economic profit is shown below:

Economic profit is

= Accounting profit - implicit costs

= $150,000 - ($100,000 + $75,000)

= -$25,000

Hence, the economic profit of Victor is -$25,000

We simply applied the above formula so that the correct value could come

And, the same is to be considered