Imagine Tom's annual salary as an assistant store manager is $30,000,he owns a building that rents for $10,000 yearly,and his financial assets generate $1,000 per year in interest.One day,after deciding to be his own boss,he quits his job,evicts his tenants,and uses his financial assets to establish a bicycle repair shop.To run the business,he outlays $15,000 in cash to cover all the costs involved with running the business,and earns revenues of $50,000.Which of the following statements is true?

Question

Quizplus · Accepted Answer

Tom's opportunity cost is the value of his next best alternative, which is his previous salary of $30,000 plus the rent from his building of $10,000, plus the interest from his financial assets of $1,000, for a total of $41,000. His accounting profit is his revenue of $50,000 minus his explicit costs of $15,000, for a total of $35,000. His economic profit is his accounting profit minus his opportunity cost, which is $35,000 - $41,000 = -$6,000.

Imagine Tom's Annual Salary as an Assistant Store Manager Is