Respuesta :
Answer:
Accounting profit $103,000
Economic profit(loss here) is -$64,000
She should rather take the job at Monster Inc as she is not enjoying an economic profit
Explanation:
In this question, we are asked to calculate the economic and accounting profits for Peggy-sue’s cookies. We proceed as follows;
Accounting profit(I.e profit without opportunity cost) = 250,000 - 80,000 - 22,000 - 40,000 - 5,000 = $103,000
The Economic profit(profit with opportunity cost) = Accounting Profit - opportunity cost
Let’s calculate the opportunity cost;
Opportunity cost = 160,000( her salary I’d she was working with Monster Inc) + 35,000 * 20%( her investment if she leaves the company) = 160,000 + 7,000 = 167,000
Her Economic Profit = 103,000 - 167,000 = -64 000( a loss in this case)
Answer:
Accounting Profit = 103,000 Economic profit. = (64,000)
Explanation:
ACCOUNTING PROFITS
Revenue .......... $250,000
Expenses:
Labor $80,000
Rent 22,000
Materials 40,000
Utilities 5,000
Total Costs........... $147,000
Net Profit $103,000
ECONOMIC PROFITS (1)
Revenue .........................$250,000
Explicit
Labor $80,000
Rent 22,000
Materials 40,000
Utilities 5,000
Total Explicit Costs...... $147,000
Implicit Costs
Opportunity Cost of Working for Cookie Monster $160,000
Opportunity Cost of Owner's Capital ($35,000 X 20%) 7,000
Total Implicit Costs $167,000
Total Explicit Plus Implicit Costs $147,000 + $167,000 = $314,000
Economic Profit = 250,000 - 314,000 = ($64,000)
Peggy Sue is better off working for herself and should not work for Cookie Monster, Inc.
