Question

As part of an estate settlement Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business; her salary at Lucky.Com Inc. was $75,000 per year.
1. At the end of the first year of operating her new business, Mary's accountant reported an accounting profit of $150,000. What was Mary's economic profit?

a. $25,000 loss
b. $50,000 loss
c. $25,000 profit
d. $150,000 profit 13.

2. What are Mary's opportunity costs of operating he r new business?

a. $25,000
b. $75,000
c. $100,000
d. $175,000

3. How large would Mary's accounting profits need to be to allow her to attain zero economic profit?

a. $100,000
b. $125,000
c. $175,000
d. $225,000

Answer 1

Answer:

Following are the solution to the given point.

Explanation:

For question 1:

Economic gains are distinct from bookkeeping gains. Accounting value also takes into account the cost of potential.

$\text{Economic Profit = Accounting Profit - Loss of salary - Risk free bond income}$

                          $= 150, 000 -75,000 - 1,00,000\\\\= - 25,000$

that's why "option a" is correct.

For question 2:

The "option d" is correct.

For question 3:

The "option c" is correct.