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11 March, 05:51

Mike used to work as a commercial painter for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3% interest, and borrowed $30,000 from his uncle whom he pays 3% interest per year. Last year Mike paid $25,000 for supplies and had a revenue of $60,000. How would and accountant and an economist calculate Mike's costs?

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  1. 11 March, 07:20
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    Accountant 34,100 gain

    Economist (6,500) loss

    Explanation:

    Accountant:

    revenue 60,000

    operating cost 25,000

    Interest expense 900 (30,000 x 3%)

    net income 34,100

    Economist:

    revenue 60,000

    explicit cost 25,900

    implicit cost (opportunity cost):

    savings yield:

    20,000 x 3% = 600

    painter job 40,000

    economic loss (6,500)
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