An individual leaves a college faculty, where she was earning $70,000 a year, to begin a new venture. She invests her savings of $42,000, which were earning 7 percent annually. She then spends $25,000 renting office equipment, hires two students at $18,000 a year each, rents office space for $14,000, and has other variable expenses of $35,000. At the end of the year, her revenues are $250,000. Her accounting profit is $

An individual leaves a college faculty, where she was earning $70,000 a year, to begin a new venture. She invests her savings of $42,000, which were earning 7 percent annually. She then spends $25,000 renting office equipment, hires two students at $18,000 a year each, rents office space for $14,000, and has other variable expenses of $35,000. At the end of the year, her revenues are $250,000. Her accounting profit is $

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5- Gomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5,000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4,000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3,000 per year. Total annual revenue from pottery sales is $72,000. Calculate the accounting profit and the economic profit for Gomez's pottery firm.
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