Review of Important
Concepts
,Problem 1
• Jaynet spends $30,000 per year on painting supplies and storage
space. She recently received two job offers from a famous marketin
firm—one offer was for $110,000 per year, and the other was for
$80,000. However, she turned both jobs down to continue a painti
career. If Jaynet sells 25 paintings per year at a price of $8,000 each
a. What are her accounting profits?
b. What are her economic profits?
• Answer: a) 200000 – 30000 = 170,000; b) 200000 – 140000 = 60,00
, Problem 2
• Mr. Chris, belonging to a family whose business has been real estat
is contemplating establishing an independent real estate agency. H
estimates the expenditure on the salaries of employees to be Rs 15
lacs and on rent, supplies and utilities to be Rs 2.5 lac. He would al
require Rs 50,000 initially to be invested in assets. While he is mak
his new business plan, he is an employee of ABC realtors, where hi
annual income is Rs 1 lac. The market rate of interest is 12% per
annum. He expects to generate a revenue of Rs 20 lacs. Determine
the economic profit/loss of this venture.
Concepts
,Problem 1
• Jaynet spends $30,000 per year on painting supplies and storage
space. She recently received two job offers from a famous marketin
firm—one offer was for $110,000 per year, and the other was for
$80,000. However, she turned both jobs down to continue a painti
career. If Jaynet sells 25 paintings per year at a price of $8,000 each
a. What are her accounting profits?
b. What are her economic profits?
• Answer: a) 200000 – 30000 = 170,000; b) 200000 – 140000 = 60,00
, Problem 2
• Mr. Chris, belonging to a family whose business has been real estat
is contemplating establishing an independent real estate agency. H
estimates the expenditure on the salaries of employees to be Rs 15
lacs and on rent, supplies and utilities to be Rs 2.5 lac. He would al
require Rs 50,000 initially to be invested in assets. While he is mak
his new business plan, he is an employee of ABC realtors, where hi
annual income is Rs 1 lac. The market rate of interest is 12% per
annum. He expects to generate a revenue of Rs 20 lacs. Determine
the economic profit/loss of this venture.
