Question

# Danya plans to open an English course. Currently he earns Rp. 350 million per year teaching...

Danya plans to open an English course. Currently he earns Rp. 350 million per year teaching a language education institution and will have to give up this job if he opens a new English language course. If he chooses to open an English course, it will cost him rent and other operational costs of Rp. 2 billion per year.

a. How much does he need to generate positive accounting profit?
b. How much does he need to generate positive economic profit?

a) Ans: He needs to generate total revenue greater than \$2 billion for positive accounting profit.

b) Ans: He needs to generates total revenue greater than \$2.35 billion for positive economic profit.

Explanation:

Implicit costs =\$350 million

Explicit costs = \$2 billion

Accounting Profit = Total revenue - Explicit costs

Economic Profit = Accounting Profit - Implicit costs

Or ,

Economic Profit  = Total revenue - Explicit costs - Implicit costs

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