Gomez runs a small pottery firm. He hires one helper at $13,000 per year, pays annual rent of $5,500 for his shop, and spends $21,500 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $5,500 per year if alternatively invested. He has been offered $19,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $2,500 per year. Total annual revenue from pottery sales is $75,000.

Question

Calculate the accounting profit and the economic profit for Gomez's pottery firm.

Explanation:

Gomez's run a small poetry firm

1. He Hired one helper and pay him $13,000 per year

2. He pays an annual rent $5,500 for his shop

3. He pays $21,500 on materials per year.

Then, his total explicit costs is

$13,000 + $5,500 + $21,500

Explicit costs: $40,000

He has is $40,000 of his own fun invested in equipment which could have earn him $5,500 per year if alternatively invested. Then,

Foregone interest: $5,500

He has been offered $19,000 job to work as a Potter for competition

Foregone salary: $19,000

Entrepreneurial talents worth $2,500 per year

Normal profit: $2,500

The implicit cost is $5,500 + $19,000 + $2,500

Implicit cost: $27,000

Total annual revenue from pottery sales is $75,000.

Total revenue: $75,000

Then, the Accounting profit is the explicit costs subtracted from total annual profit

Accounting profit = $75,000 -$40,000

Accounting profit = $35,000

Economic profit is explicit cost subtracted from the accounting profit

Economic profit= $35,000 -$27,000

Economic profit = $8,000

d. automatic stabilizers.

explanation:

forbearance of student loan payments. under forbearance, your loan payments are postponed (or reduced) but interest continues to accrue during the period of forbearance. if you don't pay the interest during that period, the interest may be “capitalized,” which means it is added to your principal balance.