Question

Jill took ​$80 comma 000 that she had in savings and started her own business. If left in investments she would have earned ​$8 comma 000 this year. Jill also left a job that paid her ​$80 comma 000 a year and plans on paying herself ​$60 comma 000. Materials and other labor costs will be ​$90 comma 000. The company is located in a building that Jill owns. She could have rented the building out for ​$50 comma 000 but plans on charging the company only the insurance and mortgage payment of ​$40 comma 000. What do the accounting and economic costs​ equal?

Answer 1

Answer:

$190,000 ; $228,000

Explanation:

Accounting Cost:

= Salary of Jill + Labor costs +  Insurance and mortgage payment

= $60,000 + $90,000 + $40,000

= $190,000

Economic Cost:

= Accounting Cost + Investment return lost + Loss in Salary  + Loss in Rent

= $190,000  + $8,000 + ($80,000 - $60,000) + ($50,000 - $40,000)  

= $228,000

Therefore, accounting and economic costs​ are $190,000  and $228,000, respectively.