Question 3 Gomez runs a small pottery firm. He hires one helper at $11,500 per year, pays annual rent of $7,000 for his shop, and spends $22,500 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 $6,500 per year if alternatively invested. He has been offered $22,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $4,500 per year. Total annual revenue from pottery sales is $80,000. Instructions: Enter your answers as whole numbers. a. Calculate the accounting profit for Gomez’s pottery firm. b. Now calculate Gomez's economic profit.
Question 3 Gomez runs a small pottery firm. He hires one helper at $11,500 per year, pays annual rent of $7,000 for his shop, and spends $22,500 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 $6,500 per year if alternatively invested. He has been offered $22,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $4,500 per year. Total annual revenue from pottery sales is $80,000.
Instructions: Enter your answers as whole numbers.
a. Calculate the accounting profit for Gomez’s pottery firm.
b. Now calculate Gomez's economic profit.
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