Ben currently works in a large company where he makes $100,000 per year. He is considering...
Ben currently works in a large company where he makes $100,000 per year. He is considering starting his own business, where he expects to earn $175,000 per year. To start his own business, he has determined that he would need to rent an office in an office building and hire an assistant. The current yearly rent for an office space is $57,000. He also believes he could hire an assistant for $33,000 per year. Calculate Ben's economic profit.
Homework Answers
Revenue= $175,000 per year
Accounting costs are explicit cost that require monetary payment
Annual rent is $57,000
Hiring an assistant= $33,000
Total accounting cost= $57,000 + $33,000=$90,000.
Accounting profit= Revenue- Accounting cost
= $175,000 - $90,000=$85,000.
Economic profit= Accounting profit-implicit costs.
Implicit cost is $100,000 as this is the salary foregone, the next best alternative.
Economic Profit= $85,000 - $100,000= -$15,000 ( loss).
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