Tanya imports sweaters from Peru and sells them from her home. She collects $400,000 in revenue a year, and spends $200,000 on the sweaters and shipping costs, as well as $25,000 on accounting services and utilities. She used to make $100,000 per year working for an advertising agency. Now she works out of the basement of her house, for which she doesn’t have any other marketable use. She has no other expenses.
Tanya’s economic profit is:
A. -$25,000
B. $100,000
C. $75,000
D. $175,000
I know that accounting profit is $175,000 and the equation for economic profit is economic profit = accounting profit – opportunity cost.
I’m just unsure which counts as opportunity cost bc my answer is not one of the choices ><
THANKS!
SORRY!!
The TITLE of the question is wrong…i meant ECONOMIC PROFIT!
Tanya would get 100’000 in ad agency as opportunity profit.
But she gets 175’000 instead. So just calculate difference 175’000-100’000=75’000
Correct answer is “C” Economic profit is 75’000.