Lee had invested $100 000 in a risk-free unit trust, on which she earned $10 000 each year. She used that money to buy a prawn farm. She also quit her job as a salesperson to devote all of her time to her prawn business. Her salary as a salesperson was $25 000 per year.
-According to the information provided, what would Lee's accounting profits need to be to allow her to reach the zero economic profit equilibrium?

Question

Quizplus · Accepted Answer

To reach the zero economic profit equilibrium, Lee's accounting profits need to cover both her opportunity cost (the $25,000 per year she could have earned as a salesperson) and the $10,000 she is giving up by investing in the prawn farm instead of continuing to earn interest in the risk-free unit trust. Therefore, her accounting profits need to be at least $35,000 ($25,000 + $10,000).

Lee Had Invested $100 000 in a Risk-Free Unit Trust