Micah has decided to leave his $70,000-a-year landscape design job and open a new kayak business. His insurance cost is expected to be $2,000 per year. The kayaks he owns are valued at $25,000, but he experiences 20% annual depreciation on them. He will also use building space that he owns, but to do so, he must give up the $20,000 per year in rent he used to receive for the space. He forecasts first-year revenue to be $100,000. Micah is estimated to earn _____ accounting profit and _____ economic profit.

Question

Quizplus · Accepted Answer

Micah's accounting profit is $100,000 - $2,000 - $5,000 - $20,000 = $73,000. His economic profit is $73,000 - $25,000 = $48,000.

Micah Has Decided to Leave His $70,000-A-Year Landscape Design Job