Based on the figures given for the business, we can calculate the following:
- Economic cost = $92,000
- Economic profit = -$2,000
- An accountant would not come to the same conclusion about profitability
Economic cost includes both implicit and explicit costs. Implicit costs are opportunity costs and explicit costs are the normal costs.
Economic cost here is therefore:
= Wages + Interest + Expenditure + Earnings if working for competitor (implicit cost) + Prospective rent income if rented out (implicit cost)
= 25,000 + 3,000 + 31,000 + 15,000 + 18,000
= $92,000
Economic profit:
= Total revenue - Economic cost
= 90,000 - 92,000
= -$2,000
An accountant would use accounting profit which is:
= Total revenue - Explicit costs
= 90,000 - 25,000 - 3,000 - 31,000
= $31,000
In conclusion, the company is making an economic loss.
Find out more on economic profit at https://brainly.com/question/25742185.
