Jane decides to open her own business and earns $50,000 in accounting profit the first year.When deciding to open her own business,she turned down three separate job offers with annual salaries of $30,000,$40,000,and $45,000.What is Jane's economic profit from running her own business?

Question

Quizplus · Accepted Answer

To calculate economic profit, we need to consider both accounting profit and opportunity cost. Opportunity cost is the value of the next best alternative that is given up when a decision is made. In this case, Jane's opportunity cost is the highest salary she turned down, which is $45,000.

So, her economic profit is calculated as follows:

Economic profit = Accounting profit - Opportunity cost
Economic profit = $50,000 - $45,000
Economic profit = $5,000

Therefore, Jane's economic profit from running her business is $5,000.

Jane Decides to Open Her Own Business and Earns $50,000