Question

Reggie owns and operates a cheese shop in the village of Somerset. Although Reggie has a degree in mechanical engineering and could easily go to work for his brother's company earning $68000 a year, his true passion is for cheese. Consider the list of Reggie's revenue and expenses from last year. Please use the information provided to answer the questions. Revenue from 2010 Rent Equipment Supplies $80000 $16000 $4000 $3000 What is Reggie's accounting profit? What is Reggie's economic profit? 0 -$57000 -$57000 $57000 O O $3000 $3000 $57000 5688 O $11000 O $11000 about us Careers privacy policy terms of use contact us help PM

Answer 1

Total explicit cost = rent + equipment + supplies

= 16000+4000+3000

= 23,000

Total implicit cost = 68000

Total economic cost = explicit + implicit

= 23000+68000

= 91,000

1) accounting profit = TR - explicit cost

= 80,000 - 23,000

= 57,000, option 2)

2) economic profit = TR - economic cost

= 80,000-91,000

= -11,000, option 4)