2. Accounting versus economic profit During a particular year, an advertising fi

Question

2. Accounting versus economic profit During a particular year, an advertising firm has the following costs: $575,000 in wages and salaries paid to employees; $70,000 in rental payments for office space; and $27,000 for office supplies, advertising, and utilities. In addition, Susan, the owner of the firm, works for the firm full time (and is not paid a salary, since she gets the firm's profit). If she did not work for the advertising firm, Susan could earn $120,000 per year working as an advertising agent for another firm. For each possible amount of total revenue, fill in the accounting profit and economic profit of the advertising firm. Total Revenue ($) Accounting Profit ($) Economic Profit ($) 750,000 800,000 850,000 900,000

Explanation / Answer

wages and salaries 575000 rental payments 70000 office supplies 27000 Total cost 672000 opportunity cost 120000 Total Revenues Total cost Opprtunity cost Accounting profit= (Revenue-Cost) Economic profit= (Accounting profit-opportunity cost) 750000 672000 120000 78000 -42000 800000 672000 120000 128000 8000 850000 672000 120000 178000 58000 900000 672000 120000 228000 108000

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