economic question

Question

Peter, who is currently working in a job paying him $50000 a year, is considering opening his own clothing store. To do so, he would have to quit his current job and take over a store building that he owns and currently rents to his friend for $8000 a year. His expenses at the clothing store would be $45000 for merchandise, $2500 for taxes, and $3000 for gas and electricity. What is the total amount of his explicit costs?

 

Consider Peter described in question above. In addition to using his own building, he also invested $20000 in the store by withdrawing money from a savings account which was earning 5 percent interest. This year's total revenue from the new business was $100000. What was Peter's total accounting profit?

 

Answer 1

a) Explicit Cost = Cost for merchandise + Taxes + Cost for gas and electricity

                   = $45000 + $2500 + $3000

                   = $50500.

 

b) Total accounting profits = Total revenue - Explicit costs

 

Total revenue = $100000

Total explicit cost = $50500 (calculated in part a) + Cost invested in the store

                          = $50500 + $20000

                          = $ 70500.

 

Therefore, Total accounting profit = $100000 - $70500

                                                 = $29500.