Question

Alex withdrew $500,000 from an account that paid 5 percent annual interest and used the funds to purchase real estate. After one year he sold the property for $550,000. Alex's economic profit on this deal was:__________
a) 25,000
b) Not enough information provided.
c) 50,000
d) 500,000
e) 120,000

Answer 1

Answer:

a) 25,000

Explanation:

The computation of the economic profit is shown below;

Economic profit is

= Revenue - Explicit cost - Implicit cost

= $550,000 - $500,000 - $500,000 × 5%

= $550,000 - $500,000 - $25000

= $25,000

Hence, the economic profit on this deal was $25,000

Therefore the correct option is a.

We simply applied the above formula so that the correct value could come

And, the same is to be considered