Question

In a given year, a consulting firm has the following costs: $600,000 in wages and salaries paid to employees; $73,000 in rental payments for office space; and $82,000 for office supplies, advertising, and utilities. In addition, Caroline, the owner of the firm, works for the firm full time (and is not paid a salary, since she receives the firm's profits). If she did not work for the consulting firm, Caroline could earn $130,000 per year working as a consultant for another firm. For each possible amount of total revenue, fill in the accounting profit and economic profit of the advertising firm.
Total Revenue ($) Accounting Profit ($) Economic Profit ($)
750,000
800,000
850,000
900,000

Answer 1

Answer:

750,000     -5,000     - 125,000

800,000    45,000     -  75,000

850,000    95,000     -  25,000

900,000   145,000        15,000

Explanation:

600,000 wages

73,000 rent

82,000 supplies

operating cost 755,000

opportunity cost 130,000

• accounting profit revenue - operating cost

• economic profit = accounting profit - opportunity cost