Answer to Question #145036 in Microeconomics for Arjun

Question

David runs his own business. He received an offer from a company for $50,000 per year. If he sells his business, he can get an amount of $100,000. Assume the annual interest rate is 5%. David is confused to run his own business or join the company. David annual revenue from his business is enough to cover all explicit costs and has $60,000 left over. There are no additional implicit costs. Calculate David’s accounting and economic profit.

Answer 1

David’s accounting profit is $60,000.

Economic profit is: 60,000 - 50,000 = $10,000.