Answer to Question #224900 in Microeconomics for Raksha Kapil

Question

This past year, Noah sold 50,000 ice cream cones at a price of $2.00 each. His only costs were from ingredients, for which he paid $25,000 in total. At the beginning of the year, Noah was offered a position at the pet store that would pay $90,000 for the year. Which of the following pairs represent Noah’s accounting and economic profits for working at the ice cream stand?

Answer 1

Revenue from last year sales = 50,000 * $2.00

= $100,000

Cost of goods sold = $25,000

Net Income = $100,000 - $25,000

= $75,000

The accounting profit is the net income for Noah's Ice Cream business. This accounting profit is often calculated as revenues minus expenses.

The pet store job would earn Noah $90,000 annually. This is an economic profit because it includes the opportunity costs. Noah would rather forego the pet store job at the expense of the ice cream business. The opportunity cost is the difference between $90,000 and $75,000, which is $15,000.