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Kanesha is an entrepreneur and has recently opened her first coffee shop, The Coffee Cat. Kanesha pays $5,000 rent each month, $3,200 for monthly employee payroll, and $2,100 for supplies each month. She was planning on selling several of her own tables and chairs on Craigslist for $900, but instead she brought them to The Coffee Cat. Additionally, Kanesha quit working as an accountant where she was earning $54,000 per year to open up the shop. If the shop earns $150,000 in revenue this year, calculate annual: Instructions: Enter your responses as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Hint: be sure to calculate explicit costs as annual costs. a. Accounting profits. $ b. Economic profits. $

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Answer:

$26400

$-28500

Explanation:

Accounting profit= total revenue - explicit cost

Total revenue =price x quantity sold  

Explicit cost includes the amount expended in running the business.

They include rent , salary and cost of raw materials

Explicit costs = (5000 x 12) + (3200 x 12) + (2100 x 12)

= 60,000 + 38400 + 25200 = 123600

Accounting profit = 150,000 -  123600 = 26400

Economic profit = accounting profit - implicit cost

Implicit cost is the cost of the next best option forgone when one alternative is chosen over other alternatives

Implicit costs = 54,000 + 900 = 54900

Economic profit = 26400 - 54900 = $-28500