**Question 8:**Suppose that Joe is the owner-operator of Joe’s Haircuts. Last year he earned $100,000 in total revenue and paid $65,000 to his employees and suppliers. During this last year Joe received three job offers to work for other businesses, with the highest being $40,000 per year. What was Joe’s accounting profit for the last year? What was Joe’s economic profit for the last year?**Analysis:**- **Accounting Profit Calculation:** - Total Revenue: $100,000 - Total Expenses: $65,000 (employees and suppliers) - Accounting Profit = Total Revenue - Total Expenses = $100,000 - $65,000 = $35,000- **Economic Profit Calculation:** - Opportunity Cost (highest job offer): $40,000 - Economic Profit = Accounting Profit - Opportunity Cost = $35,000 - $40,000 = -$5,000Joe’s accounting profit for the last year was $35,000. However, his economic profit was -$5,000, indicating that he would have been $5,000 better off accepting the highest job offer instead of operating his business.

The difference between the accounting profits and economic profits lies in the understanding of the…

Suppose that Joe is the owner-operator of Joe's Haircuts. Last year he earned $100,000 in total revenue and paid $65,000 to his employees and suppliers. During this last year Joe received three job offers to work for other businesses, with the highest being $40,000 per year. What was Joe's accounting profit for the last year? What was Joe's economic profit for the last year?

Suppose that Joe is the owner-operator of Joe's Haircuts. Last year he earned $100,000 in total revenue and paid $65,000 to his employees and suppliers. During this last year Joe received three job offers to work for other businesses, with the highest being $40,000 per year. What was Joe's accounting profit for the last year? What was Joe's economic profit for the last year?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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