Answer to Question #209291 in Microeconomics for Gerald

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.

 

2.1) Your annual economic costs are RM110,000 . (1M)

 

2.2) Your annual economic profit is RM-10,000. (1M)

 

2.3) Your annual accounting profit is RM50,000 (1M)

 

2.4) Based on the above information, describe the condition of your firm. (2M)

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Answer 1

Solution

a.) EC= 50,000+60,000=110,000

b.)EP= TR-TEC

100,000-110,000= -10,000

c.)AP=TR-TC

100,000-50,000=50,000

d.) Based on the above information,the firm is operating on losses since there's no profit gained.