Question

2 . The company has invested 40 million dollars in the production of furniture . As a result, production and sale of products, according to the financial report , a profit of 4 million dollars. If the firm has invested their money in the production of building materials, it would have received an annual income of 4.5 million dollars. How do calculate the total activity of the company accountant and economist ?

Answer 1

invested 40 million dollars in furniture - profit of 4 million dollars.

invested money in building materials - annual income of 4.5 million dollars.

1) Total activity of the company by accountant: the accounting profit will be 4 million in the first case and 4.5 million in the second case.

2) By economist: but economic profit also includes the alternative ways of investing money, so it will be calculated as $EP = 4 + 4.5 = 8.5$ million dollars.