Hiro owns and operates a small business that provides economic consulting servic

Question

Hiro owns and operates a small business that provides economic consulting services During the year he spends S$5,000 on travel to clients and other expenses, and the computer that he owns depreciates by $2,000. If he didn't use the computer, he could sell it and earn yearly interest of $100 on the money created through this sale. Hiro's total revenue for the year is S100,000. Instead of working as a consultant for the year, he could teach economics at a small local college and make a salary of $50,000. a. What is Hiro's accounting profit? b. What is Hiro's economic profit? c. Should Hiro continue working as a consultant, or should he teach economics instead?

Explanation / Answer

Accounting profit: Revenue as a consultant 100000 less: Explicit cost Travelling expense 55000 Depreciation on computer 2000 Accounting profit: 43000 Economic Profits: Accounting profits 43000 Lless: Implicit cost Salary as a teacher 50000 Interest on funds of computer 100 Economic Loss -7100 Hence, HIRO should Teach Economics.

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