Suppose that you open your own business and eam an accounting profit of $35,000 per year....

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Suppose that you open your own business and eam an accounting profit of $35,000 per year. When you started your business, you left a job that paid you a $30,000 salary annualy. Also, suppose that you invested $70,000 of your own funds to start up your business. If the normal rate of return on capital is 10 percent, your economic profit is O A, -$5,000. O B. $5,000. C.-$2,000 D. $2,000

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Answer 1

Answer #1

ANSWER: C -$2000

Economic Profit= Accounting profit- Opportunity cost of business(job left)-Opportunity cost of interest that could have been earned on the funds

=$35000-$30000-$7000

= (-) $2000

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Answer 2

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