An individual leaves a college faculty, where she was earning $60,000 a year, to begin a new venture. she invests her savings of $45,000, which were earning 6 percent annually. she then spends $25,000 renting office equipment, hires two students at $22,000 a year each, rents office space for $12,000, and has other variable expenses of $40,000. at the end of the year, her revenues are $200,000.

(a) what are her accounting profits for the year?
(b) what are her economic profits for the year?

(a) What are her accounting profits for the year?

Accounting profits =79000

(b) What are her economic profits for the year?

Economic profits=16300

Explanation:

Accounting profits =total revenues (200000) -total explicit costs of all inputs =25000+40000+(2x22000)+12000)

Accounting profits =200000-121000

Accounting profits =79000

Economic profits =total revenues-total opportunity cost of all inputs used - (explicit + implicit costs).

$200000-(121000+60000+(45000*6%)=

Economic profits=16300

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