Ben cartwright runs the wild west wax museum in carson city, nevada. the museum has been in business for 40 years and is a major tourist attraction. the total value of the museum's capital stock is $3.5 million, which ben owns outright. this year, the museum earned a total of $1.4 million after out-of-pocket expenses. without taking the opportunity cost of capital into account, this means that ben is earning a 40 percent return on his capital. suppose that risk-free bonds are currently paying a rate of 1010 percent to those who buy them.

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Business

Dodger

12 December, 07:50

Ben cartwright runs the wild west wax museum in carson city, nevada. the museum has been in business for 40 years and is a major tourist attraction. the total value of the museum's capital stock is $3.5 million, which ben owns outright. this year, the museum earned a total of $1.4 million after out-of-pocket expenses. without taking the opportunity cost of capital into account, this means that ben is earning a 40 percent return on his capital. suppose that risk-free bonds are currently paying a rate of 1010 percent to those who buy them.

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Damion Pace · Answer 1

To calculate Ben's economic profit we have to use the following formula:

economic profit = total revenue - accounting costs - implicit costs

where:

total revenue - accounting costs = $1,400,000 Ben's implicit cost is $350,000 ( = 10% x $3,500,000).

economic profit = $1,400,000 - $350,000 = $1,050,000 or 30% rate of return