Dane decides to give up a job earning of Dane decides to give up a job earning $
ID: 1186571 • Letter: D
Question
Dane decides to give up a job earning of
Dane decides to give up a job earning $100,000 per year as a corporate lawyer and converts the duplex that he owns into a UFO museum. (He had been renting out the duplex for $20,000 a year.) His direct expenses include $50,000 per year paid to his assistants and $10,000 per year for utilities. Fans flock to the museum to see his collection of extraterrestrial paraphernalia, which he could easily sell on eBay for $1,000,000. Over the course of the year, the museum brings in revenues of $100,000. How much is Danes accounting profit for the year? Is Dane earning an economic profit? Explain.Explanation / Answer
Account Profit = Total Profit - Total Cost
In this case, the opportunity cost is the salary Dane gave up; because the question is asking for accounting profit, we will ignore the salary Dane gave up.
100,000 = Total Profit
40,000+19,000 = Total Cost
Accounting Profit = $41,000
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