Economan has been infected by the free enterprise bug. he sets up a firm on extraterrestrial affairs. the rent of the building is $4,000, the cost of the two secretaries is $40,000, and the cost of electricity and gas comes to $5,000. there's a great demand for his information, and his total revenue amounts to $100,000. by working in the firm, though, economan forfeits the $50,000 he could earn by working for the friendly space agency and the $4,000 he could have earned as interest had he saved his funds instead of putting them in his business.

a) what is the profit o loss by an accountant's definitions?

b) what is profit or loss by an economist's definitions?

accounting profit 51,000

economic loss       3,000

Explanation:

the accounting profit will consider only the explicit cost

revenue                 100,000

rent expense           (4,000)

salaries expense   (40,000)

utilities expense      (5,000)  

net income             51,000

while, economic profit will consider the opportunity cost of each factor too.

accounting income                           51,000

opportunity cost for wages factor (50,000)

opportunity cost for capital facotr    (4,000)

economic loss                                   (3,000)

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