Question

Jill quits her job, which paid her $40,000 per year, so that she could start her own business. In the first year, she received $100,000 in total revenue and spent $15,000 on employee wages, $10,000 on supplies, $20,000 on rent and $10,000 to the government for taxes. She also used $40,000 from her personal savings to buy equipment for her business, which was earning 5 percent interest each year. At the end of the year, the market price for the equipment was $37,000. What is Jill’s economic profit for her business this year?

Answer 1

Answer:

The economic profit for her business is $45.000 without considering income tax

Explanation:

Since we are only focusing in her business, the profit is exclusively related with the operations detailed in revenues (inflows) and expenses (outflows): 100.000 - 15.000 - 10.000 - 20.000- 10.000 = 45.000. This calculation does not include income tax.