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lara31 [8.8K]
3 years ago
5

Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. H

is business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. At the end of the first year of operating his new business, Victor’s accountant reported an accounting profit of $150,000. What was Victor’s economic profit?
a. -$150,000
b. -$50,000
c. -$25,000
d. $25,000
Business
1 answer:
FromTheMoon [43]3 years ago
5 0

Answer: c.) - $25,000

Explanation:

Economic profit = Accounting profit - opportunity cost

Accounting profit = $150,000

Estimated return on bond investment = $100,000

Job earning = $75,000

Total opportunity forgone = (estimated return on bond investment + job earning)

Total opportunity forgone = $(100,000 + 75,000) = $175,000

Therefore, Victor's Economic profit equals :

$150,000 - $175,000 = - $25,000

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Instructions are listed below.

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