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Daniel worked at a bank with monthly salary of $2,500. He decided to quit his job...

Daniel worked at a bank with monthly salary of $2,500. He decided to quit his job and open a hotdog shop. He sells 2,000 hotdogs every month and the price of each hotdog is $3 given from the perfectly competitive market. For each month, he pays $2,200 for rent, and $1,600 for variable cost. How much accounting profit does Daniel make every month? How much economic profit does Daniel make every month?

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Answer #1

Accounting profit = Revenue - explicit costs

Explicit cost = Rent + variable costs

Explicit cost = $ 2200 + $ 1600

Explicit cost = $ 3800

Revenue =$ 3 * 2000

Revenue = $ 6000

Accounting profit = $ 6000 - $ 3800

Accounting profit = $ 2200

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Economic profit = Revenue - explicit costs - implicit costs

Implicit cost = Opportunity cost

Implicit cost = $ 2500

Economic profit = $6000 - $ 3800 - $ 2500

Economic profit = - $ 300

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