The following is cost information for the Creamy Crisp Donut Company:

Entrepreneur's potential earnings as a salaried worker = $50,000

Annual lease on building = $22,000

Annual revenue from operations = $380,000

Payments to workers = $120,000

Utilities (electricity, water, disposal) costs = $8,000

Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000

Entrepreneur's forgone interest on personal funds used to finance the business = $6,000

Refer to the data to calculate Creamy Crisp's accounting profit and economic profit.

Accounting profit is $230,000 Economic profit is $94,000

Explanation:

First we have to calculate Creamy Crisp's accounting costs:

accounting costs = lease + workers' salaries + utilities accounting costs = $22,000 + $120,000 + $8,000 = $150,000

Then we calculate Creamy Crisp's opportunity costs:

opportunity costs = lost salary + lost talent in other entrepreneurial activity + lost interests opportunity costs = $50,000 + $80,000 + $6,000 = $136,000

The total economic costs = accounting costs + opportunity costs = $150,000 + $136,000 = $286,000

Accounting profit = revenue - accounting cost = $380,000 - $150,000 = $230,000 Economic profit = revenue - economic costs = $380,000 - $286,000 = $94,000