Suppose you decide to start your own business when you graduate with a degree in economics. At the end of your first year in operation, you earn total revenue of $120,000. Your expenses during the year include the following: rent—$15,000, office supplies—$2,000, utilities—$6,000 and salaries paid to staff—$30,000. When you started your business, you used your saving of $10,000 for which could have earned interest of 5 per cent. Upon graduation, you had a job offer for $50,000 from a firm with whom you interviewed. Based on the information above, estimate your accounting profit and economic profit.
Suppose you decide to start your own business when you graduate with a degree in economics. At the end of your first year in operation, you earn total revenue of $120,000. Your expenses during the year include the following: rent—$15,000, office supplies—$2,000, utilities—$6,000 and salaries paid to staff—$30,000. When you started your business, you used your saving of $10,000 for which could have earned interest of 5 per cent. Upon graduation, you had a job offer for $50,000 from a firm with whom you interviewed. Based on the information above, estimate your accounting profit and economic profit.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Q. Suppose you decide to start your own business when you graduate with a degree in economics. At the end of your first year in operation, you earn total revenue of $120,000. Your expenses during the year include the following: rent—$15,000, office supplies—$2,000, utilities—$6,000 and salaries paid to staff—$30,000. When you started your business, you used your saving of $10,000 for which could have earned interest of 5 per cent. Upon graduation, you had a job offer for $50,000 from a firm with whom you interviewed.
Based on the information above, estimate your accounting profit and economic profit.
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