Question

7 8 10 11 Jen runs a martial arts club. She now has 60 trainees who pay monthly dues of $150. Every month she pays $2,000 in miscellaneous club-related expenditures including utilities, accounting services, etc. To run the club she quit her day job where she used to earn $5,000/month. She does not pay herself a salary for her time spent at the club. She runs the club from the first floor df her mother's house (a famous martial arts teacher herself). Her mother insisted that they make the arrangement official. As a result, Jen pays her mother $2,000/month for using the space. Using this information answer the following questions: Her monthly economic cost is $ 13000 Her monthly accounting cost is $ 13,000 Her monthly economic profit is $ 5000 Her monthly accounting profit is $ Check page Next page wing goals: Costs of production Jump to... Lecture notes (updated after each class)

just need answer for monthly accounting

Answer 1

Previous answers are wrong. Correct solution as follows.

(a) Accounting cost = Miscellaneous expense + Rent paid = 2,000 + 2,000 = 4,000

(b) Opportunity cost = Salary from job given up = 5,000, therefore

Economic cost = Accounting cost + Opportunity cost = 4,000 + 5,000 = 9,000

(c) Accounting profit = Revenue - Accounting cost = (60 x 150) - 4,000 = 9,000 - 4,000 = 5,000

(d) Economic profit = Revenue - Economic cost = (60 x 150) - 9,000 = 9,000 - 9,000 = 0