Suppose a lawyer leaves his $50,000-a-year job and starts his own firm breeding pit bulls.In the first year,his accounting profit is $70,000.The lawyer finances his new business with $100,000 from his savings account,which had earned 10 percent interest.From his new business,the lawyer earns an economic profit of _____

Question

Quizplus · Accepted Answer

The economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Here, the explicit accounting profit is $70,000. The implicit costs include the forgone salary of $50,000 and the forgone interest from the savings account ($100,000 at 10% = $10,000). Therefore, the total costs are $60,000 ($50,000 + $10,000), making the economic profit $70,000 - $60,000 = $10,000.

Suppose a Lawyer Leaves His $50,000-A-Year Job and Starts His