A local business earned total revenue of $100,000 against economic costs of $85,000, with the difference going to investors. If investors put in $200,000 and expect a 5% return on their investment, this business is: earning a normal economic profit. earning a negative economic profit. earning a positive accounting profit but negative economic profit. earning a positive economic profit.

Question

Business

London Bennett

15 April, 07:24

A local business earned total revenue of $100,000 against economic costs of $85,000, with the difference going to investors. If investors put in $200,000 and expect a 5% return on their investment, this business is: earning a normal economic profit. earning a negative economic profit. earning a positive accounting profit but negative economic profit. earning a positive economic profit.

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Jerry Kramer · Answer 1

If investors put in $200,000 and expect a 5% return on their investment, this business is earning a positive economic profit.

Explanation:

The present case establishes an income of $ 100,000, from which costs of $ 85,000 must be deducted, with which the profit is $ 15,000, which is the difference between both amounts. Said gain corresponds to investors, who expected a 5% return on their investment of $ 200,000.

Investors, therefore, expected at least a return of $ 10,000 (5% of 200,000 is 10,000). As we can see, the total profit is greater than the return expected by investors by 50%, therefore, it can be said that this investment is earning a positive economic profit.