Answered

Kieran owns and operates his own bike shop. In the past week, a competitor offered to buy kieran’s bike shop for $100,000 and hire kieran for $50,000 per year. Assume the annual interest rate is 6 percent, and kieran’s accounting profit from his bike shop is $60,000. Kieran’s economic profit is.



Answer :

PriyaMM

The difference between the proceeds from the sale of a product and the prices of all inputs used, as well as any opportunity costs, is known as an economic profit or loss. In determining economic profit, opportunity costs and explicit costs are removed from revenues earned.

How are economic profits determined?

  • Revenue less explicit costs minus opportunity cost equals economic profit (or loss). All costs that are normally accounted for, such as labor costs, material costs, marketing expenses, depreciation, and taxes, are considered explicit costs.
  • When total revenue is deducted from explicit and implicit costs, economic profit is found.
  • Total Revenue - (Explicit Costs + Implicit Costs) equals Economic Profit. Be aware that even if profit is positive, economic profit can still be negative.
  • Given that

Total opportunity cost = salary plus interest forgone, that is 50,000 + 6% of 100,000

= 50,000 + 6000 = 56,000.

Total revenue received = 60,000

Recall that

Economic profits = Revenue - (implicit + explicit cost)

And that

Implicit cost = opportunity cost = 56,000

Explicit cost = 0 (from the question, revenue covered it)

Thus

Economic profit = 60000 - 56000

Economic profit = $4000.

To Learn more about  economic profit refer to:

https://brainly.com/question/24477585

#SPJ4

Other Questions