Regarding the question above:   Now assume that the owner is thinking of adding a second location downtown. The capital investment required is $4,000 (not sunk). The normal rate of return is 5%.   c. If the new shop could operate under the same conditions as the original location is it a good business decision to expand?   d. What would be the new shop’s daily profit?

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Accounting and Economic Profit analysis

One comes across the concept of Profits in the context of business and in analyzing the results of business activity. Profits of a business can be accounting profits, and they can also be economic profits. So how does one understand the concept of accounting versus economic profits?