Scott used $4,000,000 from his savings account that paid an annual interest of 5% to purchase a hardware store.After one year,Scott sold the business for $4,100,000.His economic profits is:

Question

​Scott used $4,000,000 from his savings account that paid an annual interest of 5% to purchase a hardware store.After one year,Scott sold the business for $4,100,000.His economic profits is:

Quizplus · Accepted Answer

Scott's economic profit is calculated by subtracting the opportunity cost (interest he would have earned) from the accounting profit. The interest on $4,000,000 at 5% is $200,000. His accounting profit from selling the store is $100,000 ($4,100,000 - $4,000,000). Therefore, his economic profit is $100,000 - $200,000 = -$100,000.

​Scott Used $4,000,000 from His Savings Account That Paid an Annual

Scott Used $4,000,000 from His Savings Account That Paid an Annual