Question

An individual leaves a college faculty, where she was earning $70,000 a year, to begin a new venture. She invests her savings of $42,000, which were earning 6 percent annually. She then spends $25,000 renting office equipment, hires two students at $18,000 a year each, rents office space for $10,000, and has other variable expenses of $38,000. At the end of the year, her revenues are $250,000.Her accounting profit is $__.

Answer 1

Answer:$141,000

Explanation:

Implicit cost related to the given question

Earning as a college faculty left = 70,000

Interest on own investment = 6% on 42,000 = 2520

Total implicit cost = 70,000+2520 = 72,520

Explicit cost the related to the given question

Rent of office equipment = 25,000

Hiring two students at 18,000 each = 36,000

Rent of office space = 10,000

Other variable expenses = 38,000

Total explicit cost = 25,000+36,000+10,000+38,000 = 109,000

Total Revenue = 250,000

Accounting profit = Total Revenue – Explicit Cost

Accounting profit = 250,000 – 109,000 = $141,000