The MidNight Hour, a local nightclub, earned $100,000 in accounting profit last year. This year the...
The MidNight Hour, a local nightclub, earned $100,000 in accounting profit last year. This year the owner, who had invested $1 million in the club, decided to close the club. What can you say about economic profit (and the rate of return) in the night-club business?
Please Explain in detail.
Homework Answers
Accounting profit = $100,000 last year
Economic Profit = Accounting Profit - Implicit cost
Implicit cost is the foregone income for last year which can be anything.
Economic Profit = 100,000 - Implicit Cost
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