You use $2,000 of your own money to start a dog-sitting service. During the first year you earn a 10% return on your investment. If the current interest rate is 7%, you earn an economic profit of

Question

Quizplus · Accepted Answer

Economic profit is calculated as the actual return minus the opportunity cost. The actual return is 10% of $2,000, which is $200. The opportunity cost, based on the 7% interest rate, is 7% of $2,000, which is $140. Therefore, the economic profit is $200 - $140 = $60.

You Use $2,000 of Your Own Money to Start a Dog-Sitting