Economics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 3

Last year, Jarod left a job that pays $60,000 to run his own bike-repair shop. Jarod's shop charges $65 for a repair, and last year the shop performed 3,000 repairs. Jarod's production costs for the year included rent, wages, and equipment. Jarod spent $50,000 on rent and $100,000 on wages for his employees. Jarod keeps whatever profit the shop earns, but does not pay himself an official wage. Jarod borrowed $20,000 for the shop's equipment at an annual interest rate of 5 percent.
a. What is Jarod's accounting profit?
b. What is Jarod's economic profit?