Answer:
Accounting profit $103,000
Economic profit(loss here) is -$64,000
She should rather take the job at Monster Inc as she is not enjoying an economic profit
Explanation:
In this question, we are asked to calculate the economic and accounting profits for Peggy-sue’s cookies. We proceed as follows;
Accounting profit(I.e profit without opportunity cost) = 250,000 - 80,000 - 22,000 - 40,000 - 5,000 = $103,000
The Economic profit(profit with opportunity cost) = Accounting Profit - opportunity cost
Let’s calculate the opportunity cost;
Opportunity cost = 160,000( her salary I’d she was working with Monster Inc) + 35,000 * 20%( her investment if she leaves the company) = 160,000 + 7,000 = 167,000
Her Economic Profit = 103,000 - 167,000 = -64 000( a loss in this case)
