Answer:
a). Accounting profits=$6,000
b). Economic profit=-$6,000
Explanation:
a). The accounting profits for Gomez's pottery firm can be expressed in the form;
Accounting profits-Total monetary revenue-Total monetary expenses
where;
Total monetary revenue=$86,000
Total monetary expenses=excludes opportunity cost=wages+rent+materials+equipment=(14,500+7,500+18,000+40,000)=$80,000
replacing;
Accounting profits=(86,000-80,000)=$6,000
Accounting profits=$6,000
b). Gomez's economic profit
Economic profit=Total revenue-total costs
where;
Total revenue=(86,000+5,000+6,000)=97,000
Total costs includes opportunity cost=(80,000+23,000)=103,000
replacing;
Economic profit=(97,000-103,000)=-$6,000
Economic profit=-$6,000
