Andreas is a political consultant with his own firm.He travels the country and provides campaign advice for political candidates.Last year,he earned $250 000 in revenue for his services.He pays 1 employee $50 000 to manage the small office back home and pays $30 000 on rent and utilities for that office.His accountant tells him that if he sold all of the equipment,he could put that money in the bank and earn $3 000 in interest next year.Andreas also has received an offer to teach political science at a university at a salary of $100 000.Andreas's accounting profit is equal to _____,and his economic profit is equal to _____.

Question

Quizplus · Accepted Answer

Accounting profit is calculated as total revenue minus explicit costs, which is $250,000 - ($50,000 + $30,000) = $170,000. Economic profit also considers opportunity costs, which include the foregone interest ($3,000) and the salary from teaching ($100,000), so it is $170,000 - ($3,000 + $100,000) = $67,000.

Andreas Is a Political Consultant with His Own Firm