What is economic profit and accounting profit

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Reference no: EM131198263

Last year, Jarod left a job that pays $50,000 to run his own bike-repair shop. Jarod’s shop charges $65 for a repair, and last year the shop performed 3,000 repairs. Jarod’s production costs for the year included rent, wages, and equipment. Jarod spent $40,000 on rent and $120,000 on wages for his employees. Jarod keeps whatever profit the shop earns, but does not pay himself an official wage. Jarod borrowed $20,000 for the shop’s equipment at an annual interest rate of 5 percent.

Instructions: Round your answers to the nearest dollar and include a negative sign if appropriate.

a. What is Jarod’s accounting profit?

b. What is Jarod’s economic profit?

Reference no: EM131198263

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