Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business?
A) $-55,000
B) $-5,000
C) $5,000
D) $20,000

Question

Quizplus · Accepted Answer

Economic profit is accounting profit minus the opportunity cost of the next best alternative. In this case, the opportunity cost is the salary Jacqui could have earned if she had taken one of the job offers. The highest salary offered was $45,000, so Jacqui's economic profit is $50,000 - $45,000 = $5,000.

Jacqui Decides to Open Her Own Business and Earns $50,000