a) Ernie's accounting profit is <u>$40,500</u>.
b) Ernies economic profit is <u>$10,500</u>, excluding the salary forgone (opportunity cost) from the accounting profit.
<h3>What is the difference between accounting profit and economic profit?</h3>
The difference between accounting profit and economic profit is that accounting profit does not consider the opportunity costs, which economic profit factors in.
Accounting profit is narrower in concept than economic profit. It is simply revenue minus total costs without opportunity cost.
Economic profit, on the other hand, includes the opportunity costs in the total costs.
<h3>Data and Calculations:</h3>
Salary per year at P.E.T.S = $30,000
Annual interest from savings = $500 ($10,000 x 5%)
Revenue in the new business = $50,000
Explicit costs = $10,000
Accounting profit = $40,500 ($50,500 - $10,000)
Economic profit = $10,500 ($50,500 - $10,000 - $30,000)
Thus, Ernie's accounting profit is <u>$40,500</u> and the economic profit is <u>$10,500</u>.
Learn more about accounting profit and economic profit at brainly.com/question/27113609
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