Accounting Profit and Economic Profit
Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000.
- What is Walter’s total explicit cost?
- What is Walter’s total opportunity cost of the business?
- What is Walter’s accounting profit?
- What is Walter’s economic profit?
- Is Walter better off in his painting business than when he was a schoolteacher?