Question

Ben quit his job as an economics professor to become a golf professional. He gave up his $30,000 salary and invested his retirement fund of $50,000 (which was earning 10 percent interest) in this venture. After all expenses, his net winnings were $35,000. Ben's economic profits were:________.
a. $35,000.
b. $5,000.
c. $2,000.
d. zero.

Answer 1

Answer:

The correct answer is B.

Explanation:

Giving the following information:

He gave up his $30,000 salary and invested his retirement fund of $50,000. After all expenses, his net winnings were $35,000.

The difference between economic profit and accounting profit is that the first one takes into account the opportunity cost. In this case, the cost of not perceiving the salary.

Economic profit= winnings - opportunity cost

Economico profit= 35,000 - 30,000= $5,000