3. Kanesha is an entrepreneur and has recently opened her first coffee shop, The

Question

3. Kanesha is an entrepreneur and has recently opened her first coffee shop, The Coffee Cat. Kanesha pays $5000 rent each month, $4800 for employee payroll, and $1200 for supplies. She was planning on selling several of her own tables and chairs on Craigslist for $1500, but instead she brought them to The Coffee Cat. Additionally, Kanesha quit working as an accountant where she was earning $52,000 per year to open up the shop. If the shop earns S180,000 in revenue this year, calculate annual: (a) Accounting profit. (b) Economic profit.

Explanation / Answer

3.

A.

Accounting profit = Revenue – explicit cost

Accounting profit = 180000 – (12*5000+4800+1200)

Accounting profit = $114000

B.

Economic profit = Revenue – explicit cost – implicit cost

Economic profit = 180000 - (12*5000+4800+1200) - (1500+52000)

Economic profit = $60500

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