1. Accounting versus economic profit In a given year, a marketing firm has the f

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1. Accounting versus economic profit In a given year, a marketing firm has the following costs: $575,000 in wages and salaries paid to employees; $70,000 n rental payments for office space; and $27,000 for office supplies, advertising, and utilities. In addition, Andrew, the owner of the firm, works for the firm full time (and is not paid a salary, since he receives the firm's profits). If he did not work for the marketing firm, Andrew could earn $120,000 per year working as a marketing manager for another firm. For each possible amount of total revenue, fill in the accounting profit and economic profit of the marketing firm Total Revenue Accounting Profit Economic Profit 750,000 800,000 850,000 900,000 Grade It Now Save & Continue Continue without saving

Explanation / Answer

Accounting profit = Total revenue - total accounting cost

Economic profit = Total revenue - total accounting cost - opportunity cost

Here opportunity cost if andrew's earning if he would have been working in some other firm.

total accounting cost = 575000+70000+27000= $672000

and total economic cost = $672000+120000=$792000

Now subtract the above figures from given TR at various levels -

TR Accounting Profit=TR-accounting cost Econmic profit=TR-economiccost 750000 78000 -42000 800000 128000 8000 850000 178000 58000 900000 228000 108000

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