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Economic Profit Vs Accounting Profit

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Jaynet spends $25,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm - one offer was for $125,000 per year, and the other was for $105,000. However, she turned both jobs down to continue a painting career. If Jaynet sells 35 paintings per year at a price of $5,000 each:

a. What are her accounting profits?

$ _______

b. What are her economic profits?

$ _______

Please give a definition for both accounting profit and economic profit and show step-by-step calculations for both.

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Solution Preview

Cost of Painting Supplies and Storage Space = $25,000
Offer from Marketing Firm 1 = $125,000
Offer from Marketing Firm 2 = $105,000
Unit price per painting = $5,000
Projected paintings sold = 35

If Jaynet sells 35 paintings per year for the price of $5,000 each, her revenue ...

Solution Summary

This solution illustrates the difference between economic profit and accounting profit by giving a step-by-step example that calculates and contrasts economic profit and accounting profit, incorporating product costs, revenue generated, and opportunity costs.