Hi there, looking to figure out part c.) of this question, thanks! Assume you ow

Question

Hi there, looking to figure out part c.) of this question, thanks!

Assume you own and manage your own fruit stand. The financial information for the stand is given below (all values are monthly). Answer each of the following, based on the information provided. Calculate your accounting profit If your other employment opportunity is to earn $1000 per month working at a t-shirt stand (and you are equally happy selling fruit or t-shirts), what is your economic profit? Should you continue selling fruit? Explain. What happens to your economic profit if you enjoy selling t-shirts and would be willing to forego up to $250 per month to work selling t-shirts rather than fruit? Should you continue selling fruit? Explain.

Explanation / Answer

a) accounting profit = Total revenue- total accounting costs = 5000- 1000-800- 2000 = 1200

b) economic profit = accounting profit - implicit opportunity costs = 1200- 1000 = 200

If it is possible to gain economic profit by selling fruits, it is advisable to continue do so.

c) It shows the preferences of people affectng the economic profit of an organisation. When a person prefers to work in tshirt store, he is ready to give up 250 rs for getting opportunity to work there. the amount that the person is ready to give up comes under opportunity cost. wconomic profit in this case reduces to -50. hence the person prefers working in the tshirt stall than working in the fruit stall.

new opportunity cost will be 1000 and 250. total 1250. new economic profit will be 1200-1250 = - 50

in that case, the business will not be continued

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