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26 January, 11:30

I own a factory which I could lease for $100,000 per year. Instead I use it for my own business making PlayDo figures. I earn $200,000 per year selling my PlayDo figures ... the PlayDo costs me $1,000 per year. If I were not making PlayDo figures I would be working as a bouncer at the Foothill Cafeteria making $99,000 per year ( ... it's a tough crowd). Considering only these expenses ... My accounting profits as a PlayDo artist are:I own a factory which I could lease for $100,000 per year. Instead I use it for my own business making PlayDo figures. I earn $200,000 per year selling my PlayDo figures ... the PlayDo costs me $1,000 per year. If I were not making PlayDo figures I would be working as a bouncer at the Foothill Cafeteria making $99,000 per year ( ... it's a tough crowd). Considering only these expenses ... My accounting profits as a PlayDo artist are:A. $99,000B. $100,000C. $199,000D. $0

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  1. 26 January, 11:48
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    C. $199,000

    Explanation:

    Accounting profits: only consider the explicit cost It ignores the opportunity cost. We will only use the sales revenue an the cost of the PlayDo figures.

    sales revenue 200,000

    COGS (1,000)

    Accounting Profit 199,000

    While the economic profit, considers the cost of the best alternative.

    The factory could be lease for 100,000

    and he could be working on a Cafeteria for 99,000

    the total opportunity cost would be 199,000

    Accounting profit - opportunity cost = economic profit

    199,000 - 199,000 = 0

    The economic profit will be 0
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