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Payne spends $35,000 per year on painting supplies and storage space
Payne spends $35,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm — one offer was for $90,000 per year, and the other was for $110,000. However, she turned both jobs down to continue a painting career. If Payne sells 25 paintings per year at a price of $9,000 each: a. What is her accounting profit?
b. What is her economic profit? c. What is the opportunity cost of her painting career?
Expert Solution
Computation of Accounting Profit:
Accounting Profit = Total Revenue - Total Cost
= 9,000*$25 - $ 35,000
= $225,000 - $35,000
Accounting Profit = $190,000
Computation of Economic Profit:
Economic Profit = Revenue - Implicit Cost - Explict Cost
Here,
Implicit Cost = Best Forgone Benefit = Highest Salary Forgone =$90,000
Explict Cost =$35000
Economic Profit =$225,000 - $90,000 - 35000 = $100,000
Opportunity cost of her painting career is $90,000.
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