Asked by Matthew Reznikov on Sep 23, 2024
Verified
James used $250,000 from his savings account that paid an annual interest of 15% to purchase a hardware store.After one year,James sold the business for $320,000. What is his economic profit?
A) $320,000
B) $70,000
C) $282,500
D) $32,500
Economic Profit
The difference between a firm's total revenue and its opportunity costs, including both explicit and implicit costs.
Savings Account
A deposit account held at a bank or financial institution that provides principal security and a modest interest rate.
Interest Rate
The percentage of a sum of money charged for its use, often expressed annually.
- Acquire knowledge on the notion of economic profits, involving an examination of both implicit and explicit costs.
- Discern the influence of opportunity costs in the analysis of economic profits.
Verified Answer
SS
Student Susanna Markham3 days ago
Final Answer :
D
Explanation :
James's economic profit is calculated by subtracting the total cost (initial investment plus the opportunity cost of the interest he would have earned) from the sale price. The opportunity cost is $250,000 * 15% = $37,500. So, the total cost is $250,000 + $37,500 = $287,500. Subtracting this from the sale price of $320,000 gives an economic profit of $32,500.
Learning Objectives
- Acquire knowledge on the notion of economic profits, involving an examination of both implicit and explicit costs.
- Discern the influence of opportunity costs in the analysis of economic profits.