Zach started a new cookie business but in order to operate his cookie business,
ID: 1110605 • Letter: Z
Question
Zach started a new cookie business but in order to operate his cookie business, he had to quit his job where he was earning $30,000 per year. During the first year of his business, Zach sold 30,000 boxes of cookies for $3 per box. Zach rents a building and equipment to produce his cookies for $24,000 per year and spends another $5,000 on ingredients. Zach's 2 employees each earn a salary of $20,000 for the year.
Zach’s accounting profit for the year was
a. $51,000
b. $71,000
c. $41,000
d. $21,000
Zach’s economic profit for the year was
-$9,000
$9,000
-$12,000
$12,000
a.-$9,000
b.$9,000
c.-$12,000
d.$12,000
Explanation / Answer
Answer
Accounting profit=revenue-explicit costs
revenue=P*Q=3*30000=90000
explicit costs=rent+ingrdient cost+salary
=24000+5000+20000*2
=69000
Accounting profit=90000-69000
=21000
option d
----------
option a
The economic profit=accounting profit-opportunity cost
opportunity cost=forgone salary =30000
Economic profit=21000-30000=-9000
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