Question

Text Problem 1.8 Show Work Question Help The data in the table represents the annual costs and revenue for Anna's Bakery, a bakery specializing in wedding cakes, where Anna works 60 hours a week. Anna also owns the building that houses her store. Anna has the option of closing her store and renting the building. If she closed the store, she could rent out the building for $65,000 per year and work for her cross-town rival, Ella's Sweet Secrets. There, she could earn a salary of $22,000 per year. ITEM Wages Interest on loans Other production expenses Total revenue AMOUNT ($) 36,000 5,000 16,000 124,000 The economic profit for Anna's Bakery is $ (Enter your response rounded to two decimal places and include a minus sign, if appropriate.)

Answer 1

Accounting profit = Revenues minus explicit costs

= 124,000 minus (36,000 + 5,000 + 16,000)

Accounting Profit = $67,000

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Economic profit = Revenues minus [explicit plus implicit costs]

= 124,000 minus [(36,000 + 5,000 + 16,000) + (65,000 + 22,000)]

Economic Profit = $(-20,000)

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Thus, the bakery earns positive accounting profit, but negative economic profit. This is due to the opportunity costs.