Question 2 Jim\'s Consuting is owned by James Smith. For the past year, Jim\'s C

Question

Question 2 Jim's Consuting is owned by James Smith. For the past year, Jim's Consulting had the following revenues and costs $600,000 Revenues Supplies Electricity and water Employee salaries James's salary $20,000 $10,000 $300,000 $250,000 James has the option of shutting down and renting out the building he owns for S60,000 per year. Additionally, James could go work for a larger consulting house for $275,000 per year. a. What is Jim's Consulting's accounting cost? b. What is Jim's Consulting's economic cost? s economic profit?

Explanation / Answer

Answer

a)

Jim's accounting cost=supplies+electricity and water+employees salary

=20000+10000+300000

=330000

b)

economic cost=salary+rent

=275000+60000

=335000

c)

Economic profit=total revenue-accounting cost-economic cost

=600000-330000-335000

=-65000

Jim's economic loss is $65000

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