Question

Maureen left her teaching job, which paid $30,000 per year, and invested $20,000 of her retirement fund (which was earning 10 percent interest) in a new real estate business. Her accountant projected $50,000 net revenue the first year. Her husband forecast her economic profit to be.

Answer 1

Maureen's husband forecast her economic profit to be is $18,000

What is economic profit?

Economic profit refers to the difference between the revenue received from the sale of an output and the costs of all inputs used, together with opportunity costs. It comprises both implicit and explicit cost of production of goods.

We know that economic profit is express as difference between the total revenue and total cost.

So total economic profit

= Revenue - paid - Interest earned on retirement.

= $50,000 - $30,000 - (10% of 20,000)

= $18,000

Hence, Maureen's husband forecast her economic profit to be $18,000

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