Asked • 02/14/21

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.

  1. What is Walter’s total explicit cost? 
  2. What is Walter’s total opportunity cost of the business? 
  3. What is Walter’s accounting profit?
  4. What is Walter’s economic profit?
  5. Is Walter better off in his painting business than when he was a schoolteacher?

1 Expert Answer


Anindita P. answered • 02/14/21

5 (33)

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