Question

An individual leaves a college​ faculty, where she was earning ​$70000 a​ year, to begin a new venture. She invests her savings of ​$42000​, which were earning 7 percent annually. She then spends ​$22000 renting office​ equipment, hires two students at ​$20000 a year​ each, rents office space for ​$9000​, and has other variable expenses of ​$42000. At the end of the​ year, her revenues are ​$225000.

Her accounting profit is?

Answer 1

In the question, it is asked to calculate the accounting profits only. Hence, there is no use of implicit costs. Implicit cost includes the benefits of own investment and benefit of own services. Therefore, her earning as college faculty and interest earned on her investment is not to be considered. It is used while calculating the economic profit.