ECONOMICS AND DECIFION PROBLEMS owns and operates a small business that provides

Question

ECONOMICS AND DECIFION PROBLEMS owns and operates a small business that provides r he or busi 1. Hiro economic consulting services. During the yes spends $57 000 on travel to clients and other expenses ness. If he didn't use the and computer, he could sell it earn yearly interest of $100 on the money created rough this sale. Hiro's total revenue for the year is $100000. Instead of working as a consultant for ear, 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? th the c. Should Hiro continue working as a consultant, or should he teach economics instead?

Explanation / Answer

Accounting profit = Total revenue - explicit cost i.e. cost of external factors of production

Accounting profit = 1,00,000-57,000 = 43,000

Economic Profit = Accounting profit -Implicit cost i.e. cost of self owned factors fo production

43000-100 = 42900

He should teach economics instead because it is giving him a net return of $50000

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