Suppose an assistant professor of economics is earning a salary of $80,000 per year. One day...
Suppose an assistant professor of economics is earning a salary of $80,000 per year. One day she quits her job, sells $115,000 worth of bonds that had been earning 4 percent per year, and uses the funds to open a bookstore. At the end of the year, she shows an accounting profit of $87,500 on her income tax return.
1. What is her economic profit? Her economic profit for the year is ?
2. What is her accounting profit?
Homework Answers
1) Economic profit = Accounting profit - implicit costs
= 87500-(80000+115000*4)
= 87500-84600
= 2900
2) Accounting profit = 87500
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