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Jane decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jane's economic profit from running her own business?

Answer :

Answer:

Jane's economic profit is $5,000.

Explanation:

Jane decides to open a business of her own and earns an accounting profit of $50,000 in the first year.  

She turned down three job offers with salaries of $30,000, $40,000, and $45,000 to start her business.  

Here, the opportunity cost of doing business is $45,000 as the opportunity cost is the cost of giving up the second-best alternative.  

The accounting profit does not consider implicit or opportunity cost. But in the calculation of economic profits, the implicit cost is considered.  

Economic profits

= Accounting profit - Implicit cost

= $50,000 - $45,000

= $5,000

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