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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.

Respuesta :

jepessoa

Answer:

  1. Accounting profit is $230,000
  2. 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

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

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