Question

Hi. THis is due Tuesday. I am working on it but can use some help. Peggy-Sue has been offered a job by Cookie monster inc for a salary of $125,000 per year. Currently she is producing her own cookies and she has revenues of $260,000 per year. Her costs are $40,000 for labor, $10,000 for rent, $35,000 for ingredients, and $5000 for utilities. She has $100,000 of her own money invested in the operation, which, if she leaves, can be sold for $40,000 that she can invest at 10% per year.
A)Calculate her accounting and economic profits.
B)Advise her as to what she should do.
Thanks in advance.


Take a shot. Calculate her accounting and economic profits. With that, you will easily be able to advise her.


What I was wondering was whether I should add her $100,000 investment as an expense when calculating her accounting profit. My Text book says its an implicit cost but wouldn't it be an explicit cost as well?

Thank you

Answer 1

Peggy-Sue’s cookies are the best in the world, or so I hear. She has been offered a job by Cookie Monster, Inc., to come to work at $125,000 per year. Currently, she is producing her own cookies, and she has revenues of $250,000 per year. Her costs are $50,000 for labor, $15,000 for rent, $70,000 for ingredients, and $6,000 for utilities. She has $100,000 of her own money invested in the operation, which, if she leaves, can be sold for $30,000 that she can invest at 45 percent per year.