Question

Raheem is currently working as a financial analyst earning
a year and is considering quitting his current job to start an art gallery. The estimated annual revenue from the art gallery is
. The annual cost of labor, advertising, and acquiring the art inventory is
. What are Raheem’s accounting and economic profits if he opens the art gallery?


Accounting profit is
, and economic profit is
.


a

Accounting profit is
, and economic profit is
.


b

Accounting profit is
, and economic profit is
.


c

Accounting profit is
, and economic profit is
.


d

Accounting profit is
, and economic profit is
.

Answer 1

I’m missing the numeric values in the problem. Please tell me:

1. Raheem’s current annual salary (the forgone wage).
2. The estimated annual revenue from the gallery.
3. The annual explicit costs (labor, advertising, inventory).
4. Any other implicit costs to include (e.g., forgone interest on savings or rental of a property he owns).

How I’ll compute it:
- Accounting profit = Revenue − Explicit costs.
- Economic profit = Revenue − Explicit costs − Implicit costs (including the forgone salary).

If you want an example now: if his salary is $50,000, revenue $120,000, and explicit costs $60,000, then accounting profit = $120,000 − $60,000 = $60,000 and economic profit = $120,000 − $60,000 − $50,000 = $10,000.

Provide the numbers and I’ll compute the correct choice (a–d).