Atticus Finch used to earn 50000 as a salesman in a company

Atticus Finch used to earn $50,000 as a salesman in a company in 2016. He gave up the job to open a new shoe repair company. He stopped renting his cottage for $5,000 per month to be used it for is new business. For year 2017, Atticus Spent $4000 on materials, insurance and utility Spent $5000 he got as a gift from his grandma for his business on which he could easily earn 5% interest annually on a saving account Paid $15,000 as wages Leased machine for $10,000 per year Borrowed $50,000 from bank at annual 6% interest rate. He earned a revenue of $150,000 from the business.

Calculate Atticus’

Explicit costs

Implicit costs

Accounting profit

Economic profit

Solution

Explicit cost: material cost 4000 Wages 15000 Lease rental of machine 10000 Interest to bank (50000*6%) 3000 Total explicit cost 32000 Implicit cost: Salary as salesman 50000 Rental of cottage (5000*12) 60000 Interest on Gift (5000*5%) 250 Total implicit cost 110250 Accounting profits: Revenue 150000 Less: Explicit cost 32000 Accounting profits: 118000 Economic profits Accounting profits 118000 Less: Implicit cost 110250 Economic profits 7750