Scenario 13-4
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 earned $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 13-4.How large would Mary's accounting profits need to be to allow her to attain zero economic profit?

Question

Quizplus · Accepted Answer

To attain zero economic profit, Mary's accounting profit needs to be equal to her opportunity cost, which includes her forgone earnings from investing in a risk-free bond fund ($100,000) and her forgone salary at Lucky.Com Inc. ($75,000). Therefore, her total opportunity cost is $175,000. To achieve zero economic profit, Mary's accounting profit needs to be $175,000.

Scenario 13-4 As Part of an Estate Settlement Mary Received $1 Million.She