Suppose that you open your own business and earn an accounting profit of $35,000 per year. When you started your business, you left a job that paid you a $30,000 salary annually. Also, suppose that you invested $70,000 of your own funds to start up your business.

If the normal rate of return on capital is 10 percent, your economic profit is

A. minus $5,000.

B. minus $2,000.

C. $5,000.

D. $2,000.

Question

Business

Nick Norris

13 September, 15:21

Suppose that you open your own business and earn an accounting profit of $35,000 per year. When you started your business, you left a job that paid you a $30,000 salary annually. Also, suppose that you invested $70,000 of your own funds to start up your business.

If the normal rate of return on capital is 10 percent, your economic profit is

A. minus $5,000.

B. minus $2,000.

C. $5,000.

D. $2,000.

+2

Answers (1)

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Phoebe Castillo · Answer 1

B. minus $2,000.

Explanation:

The computation of the economic profit is shown below:

As we know that

Economic profit = Total revenue - Explicit costs - Implicit costs

= $35,000 - $30,000 - $7,000

= - $2,000

The implicit cost is come from

= $70,000 * 10%

= $7,000

We simply applied the above formula so that the economic profit could come