Answer to Question #127503 in Microeconomics for fariza

Question

1.4) You use RM40,000 of your own money to start a catering business. During the first year you earn a 5% return on that investment. If the current interest rate on savings is 8%, you earn an economic profit of ___________

Working Calculation:

1.5) You use RM50,000 of your own money to start an espresso stand. During the first year you earn a 10% return on that investment. If the current interest rate on savings is 8%, you earn an economic profit of ___________

Working Calculation: 

Answer 1

1.4) If the current interest rate on savings is 8%, you earn an economic profit of  $40,000×(0.05 - 0.08) = -1,200.$

1.5) If the current interest rate on savings is 8%, you earn an economic profit of

$40,000×(0.1 - 0.08) = 800.$