I need a little direction with this. Here is the question: During a particular y

Question

I need a little direction with this. Here is the question: During a particular year, a consulting firm has the following costs: 575,000 in wages and salaries to employees; 70,000 in rental payments; and 27,000 for office supplies, utilities and advertising. In Addition Janis the owner of the firm is full time and is not paid in salary, she she gets the firms profits. If she did not work for the consulting firm, janis could earn 120,000 per year working as a consultant for another firm. For each possible amount of total revenue, fill in the accounting profit and economic profit of the consulting firm. Total revenues are : 750,000; 800,000; 850,000 and 900;000 What are the accounting profit and economic profit for each? I tried subtracting and adding numbers above but nothing came out right. Any ideas?

Explanation / Answer

Yes, economic costs include opportunity costs, while accounting costs do not. During a particular year, a consulting firm has the following costs: 575,000 in wages and salaries to employees--accounting and economic cost; 70,000 in rental payments--accounting and economic cost; and 27,000 for office supplies, utilities and advertising--accounting and economic cost. In Addition Janis the owner of the firm is full time and is not paid in salary, she she gets the firms profits. If she did not work for the consulting firm, janis could earn 120,000 per year working as a consultant for another firm--Economic Cost. For each possible amount of total revenue, fill in the accounting profit and economic profit of the consulting firm. Total revenues are : 750,000; 800,000; 850,000 and 900;000 Total Accounting Cost: 575,000+70,000+27,000=672,000 Total Economic Cost=672,000+120,000=792,000 Profit=Revenue-Cost So, if revenue is 750,000, then Accounting Profit=750,000-672,000=$78,000 Economic Profit=750,000-792,000=-$42,000 Repeat process with each revenue level since costs will stay fixed. Accounting profit should be 50,000 higher each time. Same with Economic profit.

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