Calculate a firms cost and profit in different ways

Reference no: EM133287391

Case: Why do accountants and economists calculate a firm's cost and profit in different ways? Suppose you give up your current employment as a journalist earning $80,000 and purchase a mobile coffee franchise. Your annual costs include: wages $60,000; coffee beans, milk and cookies $40,000; petrol $6,000; mobile phone $2000. You use your own vehicle rather than lease one for $8,000. You used your own savings of $200,000 to purchase the business instead of borrowing the funds at an interest rate of 8%. The average expected annual return in this industry is $30,000. Your total revenue after one year is $240,000.

a. What are your explicit and implicit costs?

b. What is your accounting profit?

c. What is your economic profit?

d. Should you stay in business?

Reference no: EM133287391

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