Calculating the accounting and economic profit , Macroeconomics

Kate uses a sewing machine to alter and repair clothes for one year in her own small business, Kate's Tailoring. She earns $20,000 during the year for various sewing projects. In the course of the year, she spends $2,000 on materials (cloth and thread); she pays $1,300 to rent a small workspace from the neighbourhood dry cleaners; and the value of her sewing machine depreciates by $200.

If Kate had closed her business at the beginning of the year, she knows that she could have sold her sewing machine for $1,000, put the money in the bank, and earned $50 in interest. She also knows that if she had taken a full-time job instead of running this tailoring business, she could have earned $12,000 per year.  

  1. In dollars, what is the accounting profit of Kate's Tailoring?
  2. In dollars, what is the economic profit of Kate's Tailoring?

 

Posted Date: 3/11/2013 3:06:11 AM | Location : United States







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