thanks :) 19.29 Philip owns and operates a gas station. Philip works 40 hours a

Question

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19.29 Philip owns and operates a gas station. Philip works 40 hours a week managing the station but doesn't draw a salary. He could earn $700 a week doing the same work for Terrance. The store owes its bank $100,000 and Philip has invested $100,000 of his own money. If Philip's accounting profts are $1,000 per week while the interest on his bank debt is $400 per week, the business economic profits are (a) $0 per week (b) S - 100 per week. (c) $600 per week. (d) $300 per week (e) $1,000 per week. Topic: Profit Maximization % Correct Responses: 0 Correct Answer: B Difficulty: 0 Discrimination Index: 0 19.30 Philip owns and operates a gas station. Philip works 40 hours a week managing the station but doesn't draw a salary. He could earn $700 a week doing the same work for Terrance. The store owes its bank $100,000 and Philip has invested $100,000 of his own money. If Philip's accounting profits are $1,000 per week while the interest on his bank debt is $500 per week, the business economic profits are (a) S0 per week. (b) S- 200 per week. (c) $500 per week. (d) $300 per week. (e) $1,000 per week.

Explanation / Answer

First question is answered below

1.

Correct option: (b)

Reason: Economic profits = Accounting profit - Opportunity cost

Economic profit = 1000 - (700+400)

Economic profit = -100

Thus, there is economic loss of $100

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