James used $250,000 from his savings account that paid an annual interest of 15% to purchase a hardware store.After one year,James sold the business for $320,000. What is his economic profit?

Question

​James used $250,000 from his savings account that paid an annual interest of 15% to purchase a hardware store.After one year,James sold the business for $320,000. What is his economic profit?

Quizplus · Accepted Answer

James's economic profit is calculated by subtracting the total cost (initial investment plus the opportunity cost of the interest he would have earned) from the sale price. The opportunity cost is $250,000 * 15% = $37,500. So, the total cost is $250,000 + $37,500 = $287,500. Subtracting this from the sale price of $320,000 gives an economic profit of $32,500.

​James Used $250,000 from His Savings Account That Paid an Annual

James Used $250,000 from His Savings Account That Paid an Annual