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Homework answers / question archive / Answer the next two questions (a and b) based on this info: for Kaifa Donut Company, he works at his own Donut company but his potential earnings as a salaried worker elsewhere is $50,000, he incurred the following expenses during the year: rent is $22,000, wages to workers is $120,000, utilities is $8,000, Revenue is $380,000, potential economic profit from the next best entrepreneur activity is $80,000 and potential foregone interest on his personal savings used to finance the business is $6,000 a
Answer the next two questions (a and b) based on this info: for Kaifa Donut Company, he works at his own Donut company but his potential earnings as a salaried worker elsewhere is $50,000, he incurred the following expenses during the year: rent is $22,000, wages to workers is $120,000, utilities is $8,000, Revenue is $380,000, potential economic profit from the next best entrepreneur activity is $80,000 and potential foregone interest on his personal savings used to finance the business is $6,000
a. what is the accounting profit
b. what is the economic profit
a) Computation of Accounting Profit:
Accounting Profit = Revenue - Explicit Costs
Here,
Revenue = $380,000
Explicit Costs = Rent + Wages + Utilities = 22000+8000+120000 = $150,000
Accounting Profit = $380,000-$150,000 = $230,000
b) Computation of Economic Profit:
Economic Profit = Accounting Profit - Implicit Costs
Here,
Accounting Profit = $230,000
Implicit Costs = $50,000 + $6,000 + $80,000 = $136,000
Economic Profit = $230,000 - $136,000 = $94,000
