Question

Violet purchased a tract of land for $100,000. She quit her $30,000-a-year job as a postal employee and opened a skeet shooting range on her land. The range generates $30,000 in net revenue after all day-to-day expenses have been covered. Assume that the relevant discount rate is 10 percent. What is Violet's business profit? What is her economic profit?

Answer 1

Answer:

The Business profit = $30,000

Economic profit = Loss of $10,000

Explanation:

Data provided in the question:

Cost of land purchased = $100,000

Salary = $30,000

Revenue generated = $30,000

Discount rate = 10%

Now,

The Business profit =  Net revenue generated

i.e

The Business profit = $30,000

Economic profit

= Business profit  - Interest received on land - Implicit cost (i.e the salary)

or

Economic profit = $30,000 - 10% of $100,000 - $30,000

= - $10,000

here, the negative sign of the value of economic profit depicts the loss i.e there is loss of $10,000