Asked by Ahmed Aldughaither on Jun 03, 2024

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The sole proprietor of the Milwaukee Machine Company receives all accounting profits earned by her firm. She has a standing salary offer of $32,000 a year to work for a large corporation. If she had invested her capital outside her own company, she estimates that would have returned $15,000 this year. If accounting profits for the year were $55,000, then her economic profits were (based solely on the given figures)

A) $102,000.
B) $8,000.
C) $47,000.
D) $-23,000.

Accounting Profits

The total revenue of a business minus the explicit costs; it is the net income reported on the financial statement.

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs.

Salary Offer

The amount of money proposed to be paid to an employee for their services, typically expressed as an annual sum or hourly wage.

  • Compute the overall economic charges for a firm, encompassing both explicit and implicit expenses.
  • Distinguish between the concepts of accounting profit and economic profit.
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Zybrea KnightJun 03, 2024
Final Answer :
B
Explanation :
Economic profits are calculated by subtracting both the opportunity costs of capital and the opportunity costs of labor (the salary she could have earned elsewhere) from the accounting profits. Here, the economic profits are $55,000 (accounting profits) - $32,000 (salary opportunity cost) - $15,000 (capital opportunity cost) = $8,000.