Ask Question
26 October, 15:46

What is Jared's accounting profit? Suppose Jared could have used his talents to run a similar kind of business instead. If he values his entrepreneurial skill at $10,000 annually, find Jared's total implicit costs. What was Jared's economic profit last year?

+1
Answers (1)
  1. 26 October, 17:51
    0
    I think your question is missed of key information, allow me to add in and hope it will fit the original one.

    After working as a head chef for years, Jared gave up his $60,000 salary to open his own restaurant last year. He withdrew $50,000 of his own savings that had been earning 4% interest and borrowed another $100,000 from the bank at a rate of 5%. As the restaurant space he was leasing had no separate office, Jared converted his basement apartment into office space. He had previously rented the apartment to a student for $300/month. The following table summarizes his operations for the past year.

    Total sales revenue $590,000

    Employee wages $120,000

    Materials $350,000

    Interest on loan $5,000

    Utilities $10,000

    Rent $25,000

    Total explicit costs $510,000

    a, What is Jared's accounting profit?

    b, Suppose Jared could have used his talents to run a similar kind of business instead. If he values his entrepreneurial skill at $10,000 annually, find Jared's total implicit costs.

    c, What was Jared's economic profit last year?

    My answer:

    a., What is Jared's accounting profit?

    As we know that accounting profit is the difference between total sales revenue and Total explicit cost, from the table we can find that:

    $590,000 - $510,000 = $80,000 is the accounting profit

    b. Jared's total implicit costs.

    Implicit costs include his foregone wages ($60,000), the value of his entrepreneurial skill ($10,000), foregone rent on the apartment ($3,600 = 12 x $300) plus the foregone interest on his savings ($2,000 =.04 x $50,000). These total $75,600.

    c. What was Jared's economic profit last year?

    Explicit plus implicit, was $585,600 = $510,000 + $75,600. His economic profit is the difference between revenue and economic cost, or $4,400 ( = $590,000 - $585,600).
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “What is Jared's accounting profit? Suppose Jared could have used his talents to run a similar kind of business instead. If he values his ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers