James used $200,000 from his savings account that paid an annual interest of 10% to purchase a hardware store. After one year, James sold the business for 300,000. His economic profit will be:a. $20,000 b. $80,000 c. $300,000 d. $100,000

The correct answer is B.

Explanation:

Giving the following information:

James used $200,000 from his savings account that paid annual interest of 10% to purchase a hardware store. After one year, James sold the business for 300,000.

To calculate the economic profit, we have to take into account not only the profit from the business but also the opportunity cost from the savings account.

Business profit= 300,000 - 200,000= 100,000

Minus:

Opportunity cost= 200,000*0.10= 20,000

Total profit= 100,000 - 20,000= 80,000

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