Jacqui decides to open her own business and earns 50,000 dollars 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 dollars.What is Jacqui's economic profit from running her own business?

Question

Quizplus · Accepted Answer

Economic profit includes both accounting profit and opportunity cost. Opportunity cost is the value of the next best alternative that must be given up in order to pursue the chosen option. In this case, Jacqui's opportunity cost is the highest paying job she turned down, which was a salary of 45,000 dollars.

Therefore, Jacqui's economic profit can be calculated as:
Economic profit = Accounting profit - Opportunity cost
Economic profit = 50,000 dollars - 45,000 dollars
Economic profit = 5,000 dollars

Therefore, choice C is the correct answer.

Jacqui Decides to Open Her Own Business and Earns 50,000