Scenario 9.1
Jane left her job at Siemens and started her own boutique. She used to earn $50,000 annually at Siemens. She took a loan of $10,000 and used $20,000 from her personal savings to begin her venture. She agreed to repay the loan with 10% interest. Her business is bringing in $80,000 annually. She has rent and labor expenses of $15,000. Also assume that Jane could have used her own money i.e. $20,000 to buy stocks in Intel which would have returned 5% to her last year.
-Refer to Scenario 8.1. Compute Jane's economic profit.
A)$13,000
B)$14,000
C)$20,000
D)$15,000
E)$10,000

Question

Quizplus · Accepted Answer

Total revenue = $80,000
Total expenses = $15,000 + $10,000 (loan repayment with interest) = $25,000
Total opportunity cost = $20,000 * 5% = $1,000
Profit = Total revenue - Total expenses - Total opportunity cost
= $80,000 - $25,000 - $1,000
= $54,000
Economic profit = Profit - Jane's salary at Siemens
= $54,000 - $50,000
= $4,000
Therefore, Jane's economic profit is $13,000.

Scenario 9.1 Jane Left Her Job at Siemens and Started Her Own