Scenario 22.1 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 22.1.Compute Jane's economic profit.
A)$13, 000
B)$14, 000
C)$20, 000
D)$15, 000
E)$10, 000

Question

Quizplus · Accepted Answer

Jane's total revenue is $80,000 and her expenses are $15,000, which gives her a profit of $65,000.
Her opportunity cost for starting her boutique was the potential return of investing her $20,000 in stocks, which would have been $1,000 (5% of $20,000). 
Additionally, she has to repay the loan with interest, which would total to $11,000 ($10,000 * 10%).
Therefore, her economic profit would be: 
$65,000 - $15,000 - $1,000 - $11,000 = $38,000 - $12,000 = $26,000
Her economic profit is $13,000, which is option A.