/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q. 8 An individual leaves a college f... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 21: Q. 8 (page 465)

An individual leaves a college faculty, where she was earning \(80,000a year, to begin a new venture. She invests her savings of \)20,000, which were earning 10percent annually. She then spends \(40,000renting office equipment, hires two students at \)30,000a year each, rents office space for \(24,000, and has other variable expenses of \)80,000. At the end of the year, her revenues are $400,000. What are her accounting profit and her economic profit for the year?

Short Answer

Expert verified

The profit in accounting is $136,000

The profit in economic is $34,000

Step by step solution

01

Introduction

The amount of money earned after both explicit and implicit costs have been taken into account is referred to as economic profit. Accounting profit refers to a company's net income, or revenue less expenses. Total costs are subtracted from a company's or investment's total income or return to calculate economic profit.

02

Explanation 

Accounting profit = total revenue minus explicit costs.

The total revenue = $400,000

The explicit cost =$264,000(40,000+24,000+80,000+120,000=264,000)The profit in accounting =$136,000(400,000-264,000=136,000)

03

Explanation 

Accounting profit = total revenue minus explicit cost.

The total revenue =$400,000

The explicit cost =$264,000(40,000+24,000+80,000+120,000=264,000)The implicit cost =$102,000(80,000+20,000+10%(20,000)=102,000)The profit in economic = $34,000(400,000-264,000-102,000=34,000)

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

After graduation, you face a choice. One option is to work for a multinational consulting firm and earn a starting salary (benefits included) of \(40,000. The other option is to use\)5,000in savings to start your own consulting firm. You could earn an interest return of 5 percent on your savings. You choose to start your own consulting firm. At the end of the first year, you add up all of your expenses and revenues. Your total includes \(12,000in rent, \)1,000in office supplies, \(20,000for office staff, and \)4,000in telecommunications expenses. What are your total explicit costs and total implicit costs?

Suppose that you are tryang to dectoe whether to spend \(1,000 on stocks issued by WildWeb or on bonds issued by the same company. There is a 50 percent chance that the value of the stock will rise to S2,200 at the end of the year and a 50 percent chance that the stock will be worthless at the end of the year. The bonds promise an interest rate of 20 percent per year, and it is certain that the bonds and interest will be repaid at the end of the year.

a. Assuming that your time horizon is exactly one year, will you choose the stocks or the bonds?

b. By how much is your expected end-of-year wealth reduced if you make the wrong choice?

c. Suppose the odds of success improve for WildWebi Now there is a 60 percent chance that the value of the stock will be \)2,200 at year's end and only a 40 percent chance that it will be worthless, Should you now choose the stocks or the bonds?

d. By how much did your expected end-of-year wealth rise as a result of the improved outlook for WidWeb?

Consider Figure 21-2. Explain why the figure indicates that if the normal rate of return on investment were to remain unchanged while accounting profit increased, economic profit also would increase.

Take a look at Figure 21-2. Explain why the figure implies that if the amount of accounting profit were to shrink to zero while the normal rate of return on investment remained unchanged, economic profit necessarily would become negative.

If you were a government official, would you rather have to deal with many small businesses or a few large corporations?
See all solutions

Recommended explanations on Economics Textbooks

Taxation Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.