Answer:
- a. $950,000.
- $150,000.
- a. $1,115,000.
- d. -$15,000.
- b. the difference between what a person currently makes and what they would earn in their best alternative.
Explanation:
1. Chris's accounting costs
The accounting cost reflects the explicit expenses of the venture. They are the usual costs;
= Parts and materials needed for restoration + Salaries of employees + His salary + Rent along with utilities
= 400,000 + 360,000 + 110,000 + 80,000
= $950,000
2. Chris's accounting profits
= Revenue - Accounting cost
= 1,100,000 - 950,000
= $150,000
3. Chris's economic cost
These consist of explicit costs plus implicit (opportunity) costs.
The opportunity cost represents the next best option which amounts to $275,000 should he have taken the position with Jay Leno as a personal auto restorer.
This means forgoing the $110,000 he makes currently.
= Accounting cost + Foregone salary - Current salary
= 950,000 + 275,000 - 110,000
= $1,115,000
4. Chris's economic profit
= 1,100,000 - 1,115,000
= -$15,000
5. b. the difference between what a person currently makes and what they would earn in their best alternative.
