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4 November, 01:45

Suppose that you open your own business and earn an accounting profit of $35,000 per year. When you started your business, you left a job that paid you a $30,000 salary annually. Also, suppose that you invested $70,000 of your own funds to start up your business.

If the normal rate of return on capital is 10 percent, your economic profit is

A. minus $5,000.

B. minus $2,000.

C. $5,000.

D. $2,000.

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  1. 4 November, 01:56
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    B. minus $2,000.

    Explanation:

    The computation of the economic profit is shown below:

    As we know that

    Economic profit = Total revenue - Explicit costs - Implicit costs

    = $35,000 - $30,000 - $7,000

    = - $2,000

    The implicit cost is come from

    = $70,000 * 10%

    = $7,000

    We simply applied the above formula so that the economic profit could come
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