Sally had been working at an investment bank for a year with an income of $100,000...
Sally had been working at an investment bank for a year with an income of $100,000 when she realized she would like to run her own business. She estimates her costs per year to be: rent = $25,000, material=$10,000, labor=$30,000, and hopes to have revenue of $300,000. Based on these assumptions, what is Sally’s economic profit? a. 135k b.235k c. 35k d.0
Homework Answers
B. 235k
Explanation:
Accounting profit does not take opportunity cost into account (here, the opportunity cost is the salary forgone i.e. $100,000)
Accounting profit = revenue -explicit costs = $300,000 - ($25,000 + $10,000 + $30,000) = $300,000 - $65,000 = $235,000.
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