Philip owns and operates a gas station.Philip works 40 hours a week managing the station but doesn't draw a salary.He could earn $700 a week doing the same work for Terrance.The station owes the bank $100,000 and Philip has invested $100,000 of his own money.If Philip's accounting profits are $1,000 per week while the interest on his bank debt is $400 per week, the business's economic profits are
A)$0 per week.
B)-$100 per week.
C)$600 per week.
D)$300 per week.
E)$1,000 per week.

Question

Quizplus · Accepted Answer

Economic profit accounts for opportunity costs. Philip's opportunity cost is the $700 he could earn elsewhere. Accounting profit is $1,000, but subtracting the $700 opportunity cost and $400 interest, the economic profit is -$100 per week.

Philip Owns and Operates a Gas Station