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24 May, 18:27

An individual leaves a college faculty, where she was earning $70,000 a year, to begin a new venture. She invests her savings of $42,000, which were earning 6 percent annually. She then spends $25,000 renting office equipment, hires two students at $18,000 a year each, rents office space for $10,000, and has other variable expenses of $38,000. At the end of the year, her revenues are $250,000. Her accounting profit is $__.

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  1. 24 May, 18:48
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    Answer:$141,000

    Explanation:

    Implicit cost related to the given question

    Earning as a college faculty left = 70,000

    Interest on own investment = 6% on 42,000 = 2520

    Total implicit cost = 70,000+2520 = 72,520

    Explicit cost the related to the given question

    Rent of office equipment = 25,000

    Hiring two students at 18,000 each = 36,000

    Rent of office space = 10,000

    Other variable expenses = 38,000

    Total explicit cost = 25,000+36,000+10,000+38,000 = 109,000

    Total Revenue = 250,000

    Accounting profit = Total Revenue - Explicit Cost

    Accounting profit = 250,000 - 109,000 = $141,000
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