Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total accounting profit for the year was:

Question

Quizplus · Accepted Answer

Accounting profit is calculated as total revenue minus explicit costs. Ralph's explicit costs include rent ($3,000 x 12 = $36,000), employee salary ($2,000 x 12 = $24,000), and ingredients/overhead ($500 x 12 = $6,000). Total explicit costs are $66,000. Therefore, accounting profit is $100,000 - $66,000 = $34,000.

Ralph Owns a Small Pizza Restaurant, Where He Works Full-Time