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29 April, 06:39

Heidi quit her job as a chef making $40,000 per year to start her own restaurant. The first year, Heidi's restaurant earned $100,000 in revenue. Heidi pays $50,000 per year in wages to the waitresses and hostess and $20,000 per year to buy food. What is Heidi's profit as measured by an accountant for the year?

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  1. 29 April, 09:00
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    The accounting profit is $30,000.

    Explanation:

    The implicit cost of running the restaurant is the opportunity cost of giving up a salary of $40,000 per year working as a chef.

    The revenue earned from the restaurant is $100,000.

    The explicit costs is

    = $50,000 + $20,000

    = $70,000

    An accountant will consider only the accounting cost or explicit cost in the calculation of profits.

    Accounting profit

    = Total revenue - Explicit costs

    = $100,000 - $70,000

    = $30,000
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