The revenues and costs of The Greener Way, a lawn care business wholly owned by Mr. Albert Johnston are listed below. Lawn Mowing $63,000 Aeration $2,000 Labour Cost $30,000 Vehicle Costs $15,000 Lawnmower Maintenance $5,000 Debt-Service Costs $13,000
a) What is The Greener Way’s accounting profit?
b) Suppose Mr. Johnston has $63,000 of capital invested in The Greener Way. Also suppose that the current return on an equally risky investment is 7%. What is the opportunity cost of Mr. Johnston’s capital?
c) What are the economic profits for The Greener Way?
d) If The Greener Way’s profits were typical of lawn care companies in 2014, what would you expect to happen to this industry? Explain.