1. Case: During a year of operation, a firm collects $5,040,000 in revenue and spends $5,000,000 on labor expenses, raw materials, rent, and utilities. The firm's owner has provided $1,000,000 of her own money (equity) instead of investing the money and earning a 4 percent annual rate of return. (The equity capital is the only owner-supplied resource to this firm.)
a. Calculate the firm's accounting profit in this year. Show all steps in any calculations.
b. Calculate the firm's economic profit in this year. Show all steps in any calculations.
c. Interpret what the economic profit tells the owner with respect to her accounting profit and her implicit costs in this year. Be sure to interpret in the context of this specific case.