Answer: C. Sebastian's economic profit is $4,000, and his accounting profit is $34,600.
Explanation:
Total Revenue = $50,000
Purchase of supplies = $15,000
Loan = $20,000 at 2% interest
Personal saving withdrawal = $20,000
Interest on personal savings = 3%
Accounting profit = Revenue - Expenses
Revenue = $50,000
Expenses = purchase in supplies + interest in loan
Expenses = $15,000 + (0.02 × 20,000)
Expenses = $15,000 + $400 = $15,400
Accounting profit = $50,000 - $15,400 = $36,600
Economic Profit = Accounting profit - Opportunity cost
Here best opportunity foregone = $30,000
Interest forgone on personal saving= $20,000 X 0.03 = $600
Total opportunity cost = $30,000 +$600 = $30,600
Thus Economic Profit = $34,600 - $30,600
= $4,000
