Answer to Question #96897 in Microeconomics for Jacob Bass

Question

Gomez runs a small pottery firm. He hires one helper at $10,500 per year, pays annual rent of $4,500 for his shop, and spends $19,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $5,000 per year if alternatively invested. He has been offered $21,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3,000 per year. Total annual revenue from pottery sales is $71,000.



a. Calculate the accounting profit for Gomez’s pottery firm.

Answer 1

a. The accounting profit for Gomez’s pottery firm is:

71,000 - (10,500 + 4,500 + 19,000) = 37,000