ceec asked:
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.
What’s the economic profit??
ep = total revenue – total cost right??
$400,000 – $225,000
economic profit = $175,000???
No, her economic profit would be 400-200-25-100 (the income she abandoned). Her accounting profit is $175K. Although, in either accounting or economics, the basement has cost to her.