Scenario 14-3
As part of an estate settlement Mary received $1 million.She decided to use the money to purchase a small business in Anywhere,USA.Her business operates in a perfectly competitive industry.If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year.She also quit her job with Lucky.Com Inc.to devote all of her time to her new business;her salary at Lucky.Com Inc.was $75,000 per year.
-Refer to Scenario 14-3.How large would Mary's accounting profits need to be to allow her to attain zero economic profit?

Question

Quizplus · Accepted Answer

Mary's opportunity cost is $175,000 ($100,000 from the risk-free bond fund and $75,000 from her salary at Lucky.Com Inc.). Therefore, for her to attain zero economic profit, her accounting profits must equal her opportunity cost of $175,000.

Scenario 14-3 As Part of an Estate Settlement Mary Received $1 Million.She