Suppose Joe starts his own business. In the first year the business earns $100,000 in revenue and incurs $85,000 in explicit costs. In addition, Joe has a standing offer to come work for his brother for $40,000 per year. Joe's accounting profit is _________ and Joe's economic profit is __________.
A)-$25,000 and $15,000
B)$15,000 and $65,000
C)$15,000 and $60,000
D)$15,000 and -$25,000

Question

Quizplus · Accepted Answer

Joe's accounting profit is calculated by subtracting explicit costs from revenue, which is $100,000 - $85,000 = $15,000. Joe's economic profit takes into account both explicit and implicit costs, including the forgone salary of $40,000. Therefore, the economic profit is $15,000 (accounting profit) - $40,000 (forgone salary) = -$25,000.

Suppose Joe Starts His Own Business