Question

You use $50,000 of your own money to start a catering business. During the first year you earn a 5% return on that investment. If the current interest rate is 8%, you earn an economic profit of _____.

Answer 1

Answer:

-$1,500

Explanation:

If the current interest rate is 8%, you earn an economic profit of:

Economic profit = Profit - Opportunity cost

Economic profit = (0.05 * $50000) - (0.08 * $50000)

Economic profit = $2,500 - $4,000

Economic profit = -$1,500

So, i will earn an economic loss of $1,500