Question

A bank teller earns $50,000 per year and also has $100,000 in a savings account earning 10% annual interest. He then quits his job and takes his money out of the saving account and invests it in the stock market. He spends all his time tracking his investments and earns $40,000 per year in income. He has made:__________.

Answer 1

Answer:

economic loss of $20,000 per year

Explanation:

The account teller earned an accounting profit = $40,000 per year, but actually has an economic loss.

economic profit / loss = accounting profit - opportunity costs

Opportunity costs are the costs or benefits lost from choosing one activity or investment over another alternative.

The teller's opportunity costs = $50,000 salary + ($100,000 x 10%) savings account = $60,000

economic profit/loss = $40,000 - $60,000 = -$20,000