Question

Jaynet spends $30,000 per year on painting supplies and storage space. She recently received a job offer from a famous marketing firm for $110,000. However, she turned the job offer down to continue a painting career. If Jaynet sells 25 paintings per year at a price of $8,000 each:
a) What are her accounting profits?
b) What are her economic profits?
c) What is the minimum amount that she would need to be offered to quit her painting career?

Answer 1

a)Accounting profit= total monetary revenue - total monetary costs
here

total monetary revenue=$8000*25=$200,000

total monetary cost =$30000

so

accounting profit =$200,000-$30,000
=$170,000
b) economic profit = total monetary revenue- total monetary cost - oppurtunity cost

where

oppurtunity cost is benefit which jaynet would have recieved if she would not have continued with paintings
economic profit = $200,000 - $30,000-$110,000

ECONOMIC PROFIT=$60,000

C) The minimum amount to quit her career should be such that her economic proft should be 0.
so she must be offered $110,000+$60,000 so that her economic profit is 0

so amount to be offered will be $170,000