Answer to Question #155446 in Microeconomics for una

Question

Upon graduating with an accounting degree, you open your own accounting firm of which you are the sole employee. To start the firm you passed on a job offer with a large accounting firm that offered you a salary of RM60,000 annually. Last year you earned a total revenue of RM100,000. Rent and supplies last year were RM50,000. 

a) calculate your annual economic costs,

b) calculate your annual economic profit, and

c) calculate your annual accounting profit.

Answer 1

a) your annual economic costs are:

TEC = 50,000 + 60,000 = RM110,000.

b) your annual economic profit is:

EP = TR - TEC = 100,000 - 110,000 = -10,000.

c) your annual accounting profit is:

AP = TR - TC = 100,000 - 50,000 = RM50,000.