Jayne spents $30,000 per year on painting supplies and storage space. She recent
ID: 1145588 • Letter: J
Question
Jayne spents $30,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm-one- offer was for $95,000 per year, and the others was for$100,000. However,she turned both job down to continue a painting career. If jaynet sells 25 painting per year at year at a price of $8000 each: what are her accounting profits? What are her economic profits? Jayne spents $30,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm-one- offer was for $95,000 per year, and the others was for$100,000. However,she turned both job down to continue a painting career. If jaynet sells 25 painting per year at year at a price of $8000 each: what are her accounting profits? What are her economic profits?Explanation / Answer
Accounting profit and Economic profit both are different. The formula for calculating both is as :
ACCOUNTING PROFIT :
Accounting profit = total revenue - explicit cost
ECONOMIC PROFIT :
Economic profit = total revenue -(implicit cost + explicit cost)
Now here we need to know three things that :
Total revenue = total income
Implicit cost= It is the opportunity cost that we gave to do something else.
Explicit cost=It is the cost of all physical payments
Now we'll calculate accounting profit and economic profit
Accounting profit = total revenue - explicit cost
=(Total revenue = price × quantity ) - explicit cost
=($ 8000 × 25 ) - $ 30000
= $ 200000 - $ 30000
= $ 1,70,000
Before calculating economic profit we need to know that there are two implicit cost $ 100000 and $ 95000 respectively.
Economic profit where the implicit cost which is also called as opportunity cost is $ 95,000
Economic profit = Total revenue - (implicit cost+ explicit cost)
Total revenue = $ 2,00,000
Implicit cost = $ 95,000
Explicit cost = $ 30,000
Economic profit = $ 200000 - ( $ 95000+ $ 30000)
$ 200000- $ 1,25,000
Then economic profit here is = $ 75,000
Where implicit cost / opportunity cost is $ 1,00,000
Total revenue = $ 2,00,000
Implicit cost = $ 1,00,000
Explicit cost = $ 30,000
Economic profit = Total revenue - (Implicit cost+Explicit cost)
$ 2,00,000 - ($ 1,00,000+$ 30,000)
$ 2,00,000 - $ 1,30,000
Here the economic profit here is $ 70,000.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.