Answer to Question #112148 in Microeconomics for Eva

Question

Your accountant tells you made $15,000 accounting profits. However, before becoming a self-employed electrician last year you earned $76,000ayearandnowyouonlypayyourself$60,000. Alsoyoutookoveranofficeinthebasementthatyoucouldhaverentedoutfor$1250 per month. You also spent $150,000 of your own money to start up your business on which you could have earned 8% annually. Your economist friend would therefore conclude that you earned a

A) $48k economic profit; B) $4k economic profit; C) $28k economic loss; D) $178k economic loss; E) $233k economic loss

Answer 1

Since the company's revenue amounted to accounting profit plus obvious costs, we get $ 90,000.

Implicit costs include potentially lost profits from loss of wages (76,000), profit from renting out premises (15,000) and from money not placed in the bank at 8% (12000). Also, the funds spent on opening your own business (150,000). Total 313,000 dollars.

Then economic losses amount to 313000-90000 = 223000 dollars.