Calculate Economic Profits:
X owns and operates a small business that provides economic consulting services. During the year he spends $40,000 on travel to clients and other expenses, and the computer that he owns depreciates by 5,000. If he didn’t use the computer, he could sell it and earn yearly interest of 200 on the money created through this sale. X’s total revenue for the year is $95,000. Instead of working as a consultant for the year, he could teach economics at a small local college and make a salary of $60,000.
a. What is X’s accounting profit?
b. What is X’s economic profit?
c. Should X continue working as a consultant, or should he teach economics instead? Teaching economics.