Jeremy, a small business owner, earns $50 an hour repairing boats. One afternoon he takes five hours off work to build a gazebo in his garden, spending $200 on materials. If the addition of a gazebo increases his home's value by $400, then his accounting profit will be:

Question

Quizplus · Accepted Answer

To calculate his accounting profit, we need to subtract his expenses from his revenue.

Revenue = 5 hours of work x $50/hour = $250 
Expenses = $200 on materials 
Accounting Profit = Revenue - Expenses

Accounting Profit = $250 - $200 = $50

Since the addition of the gazebo increases his home's value by $400, we can also add that to his accounting profit:

Accounting Profit = $50 + $400 = $450

Therefore, his accounting profit is $450, which means the best choice is C.

Jeremy, a Small Business Owner, Earns $50 an Hour Repairing