Use the following to answer questions :
Scenario: Accounting and Economic Profit
Rather than put the $100 000 that his grandmother left him in a mutual fund that earns 5% each year,Tommy Wang quit his job,which paid $60 000 per year,and started Wang's Wicker Furniture Store.He rented a showroom for $20 000 for the year,purchased $60 000 in wicker furniture,and incurred costs of $40 000 for sales help and advertising.In his first year,his revenue was $150 000.
-(Scenario: Accounting and Economic Profit)Use Scenario: Accounting and Economic Profit.The economic profit of Wang's Wicker Furniture Store is:

Question

Quizplus · Accepted Answer

Economic profit considers both explicit and implicit costs. Tommy's explicit costs are $20,000 (rent) + $60,000 (furniture) + $40,000 (sales help and advertising) = $120,000. His implicit costs include the $5,000 he could have earned from the mutual fund and the $60,000 salary he gave up, totaling $65,000. His total costs are $120,000 + $65,000 = $185,000. With revenue of $150,000, his economic profit is $150,000 - $185,000 = -$35,000.

Use the Following to Answer Questions