Question

You have a small business that makes $50,000 accounting and economic profit for you. As a disabled person, you must work at home and you did not have other opportunities until your neighbor offers you a job you like equally wel for $50,000 and you can do it at home. This means :
a. Your economic profit has gone down and your accounting profit has gone up.
b. Both of your economic profit and accounting profit have gone up
c. Your accounting profit has gone down and your economic profit has gone up.
d. Your economic profit has gone down and your accounting profit has stayed the same.

Answer 1

Answer: This means: "d. Your economic profit has gone down and your accounting profit has stayed the same."

Explanation: The difference between the accounting and economic benefit is associated with the type of cost that each includes:

The accounting benefit is nothing more than the difference between income and cost.  In this case it is still $50000.

The economic benefit includes not only explicit costs. The economic benefit is the difference between income and total costs (explicit and implicit). Therefore, this benefit is less than the accounting benefit. Because in this case the cost of working at home is considered.