Question

2. Suppose your friend was earning 22,000 a year as a sales representative for a T-shirt manufacturer. At some point she decided to open a retail store of her own to sell T-shirts. She invested 20,000 of savings that have been earning her $1,000 per year. And she decided that her new firm will occupy a small store that she owned and had been renting out for $5,000 per year. She hired one clerk to help her in the store, paying the clerk $18,000 annually. A year after she opened the store, she found the following accounting information about her business: Total sales revenuc $93,000 Cost of T-shirts Clerk's salary Utilities $40,000 18,000 5,000 Total cost Accounting profit 63,000 30,000 She was very excited about her $30,000 profit success story and was sharing it with you. You listened carefully and warned her that economically speaking she is actually losing money. Answer the following questions about your word of caution.

Answer 1

Given Salary from last job foregon = $22,000 Interest foregon on savings = $1,000 Rent foregon = $5000 Accounting profit = $3,000 To, calculate: Implicit cost = ? Economic profit loss = ? Now, Implicit cost = salary from last job foregon + Interest foregon on savings + Rent foregon = $22,000 + $1000 + $5000 Implicity cost = $28,000 Economic profit loss = Accounting profit - Implicit cost = $30,000 - $28,000 Economic profit loss = $2,000