Mike starts his own business after quitting his job in which he made $75,000. Expenses include $100,000 for wages and salaries, which includes a wage for the owner of $75,000, utilities of $5000, equipment of $50,000, and materials of $40,000. If revenues are $200,000, his accounting and economic profits are respectively

Question

Quizplus · Accepted Answer

Accounting profit is calculated as total revenues minus explicit costs, which is $200,000 - ($100,000 + $5,000 + $50,000 + $40,000) = $5,000. Economic profit also considers opportunity costs, which include the owner's foregone salary of $75,000. Thus, economic profit is $5,000 - $75,000 = -$70,000. However, the correct choice should reflect the accounting profit correctly, which is $5,000.

Mike Starts His Own Business After Quitting His Job in Which