Question

The Montgomerys are opening up a smoothie shop. Mr. Montgomery is giving up his real estate position making $150,000 a year and Mrs. Montgomery did not work outside of the home prior to the opening of the smoothie shop. The Montgomerys are renting a building in a strip mall for $17,000 per year. They anticipate spending an average of $20,000 on ingredients and appliances each year, and they anticipate revenue of $300,000 a year once they are established. Calculate the Montgomerys' annual economic profit.

Answer 1

Answer:

Annual economic profit = $113,000

Explanation:

Given:

Expenses on Real Estate = $150,000

Building rent = $17,000

Average spending on Ingredients = $20,000

Total anticipated revenue = $300,000

Computation of annual economic profit:

Annual economic profit = Total anticipated revenue - Expenses on Real Estate - Building rent - Average spending on Ingredients

Annual economic profit = $300,000 - $150,000 - $17,000 - $20,000

Annual economic profit = $113,000