Answer:
1) owner's salary 50,000
lease on building 22,000
wages 120,000
utilities 8,000
Total: 200,000
2) owners salary 80,000
capital interest 6,000
total 86,000
3) economic cost: 200,000 + 86,000 = 286,000
4) 380,000 - 200,000 = 180,000
5) 180,000 - 36,000 = 144,000
6) entrepreneur total profit: 230,000
7) if sales are 286,000 then:
accounting profit: 86,000
economic profit: 50,000
Explanation:
1) explicit cost: cost that involve cash disbursement in the future and accrual expenses
2) implicit cost: cost of the best alternative of each economic factor
3) economic cost: sum of both type of cost, explicit and implicit
4) accounting profit:
business revenue less explicit cost.
5) accounting profit less implicit cost:
notice the company is paying the entrepreneur with a salary thus, not all the opportunity cost will be used, only the difference:
50,000 - 80,000 = 30,000 salaries loss on the business.
plus 6,000 forgone interest: total 36,000
6) the normal profit to the entrepreneur is 180,000 from reamy Crisp's plus his 50,000 salary: 230,000
7) if sales are 286,000 then:
286,000 - 200,000 = 86,000 accounting profit
86,000 - 36,000 = 50,000 economic gain
