Michael runs a business that sells pianos. In an average year he finds that he receives about $900,000 in sales of pianos. From this sales revenue, Michael must pay the manufacturer $600,000 and pays wages and utility bills totaling $200,000. He owns the building where he shows and sells the pianos but could rent the building out for $160,000. He gave up a job paying $50,000 to start his own business.
- What is Michael's accounting profit or loss?
- What is Michael's economic profit or loss?
- Did he make a good decision starting his own business?