Gomez runs a small pottery firm.He hires one helper at $12000 per year,pays annu

Question

Gomez runs a small pottery firm.He hires one helper at $12000 per year,pays annual rent $5000 for his shop,and spends $20000 per year on materials.He has $40000 of his own funds invested in equipment(pottery wheels,kilns and so forth)that could earn him interest rate 10% annually if alternativelly invested.He has been offered $15000 per year to work as a potter for competitor.Total revenue from pottery sales is $72000

Calculate accounting cost,economic cost,accounting profit,economic profit for Gomez pottery firm,should Gomez stay in the pottery business or not?explain

Explanation / Answer

Calculate accounting cost for Gomez pottery firm.$12000+$5000+$20000=$37000b.

Calculate economic cost for Gomez pottery firm.$15000+$4000+$37000=$56000c.

Calculate accounting profit for Gomez pottery firm.$72000-$37000=$35000d.

Calculate economic profit for Gomez pottery firm.$72000-$56000=$16000e.

Should Gomez stay in the pottery business or not? Explain

Yes, Gomez should stay in the pottery business because he makes $1000 more than asalary he got offered from a competitor.

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