Answer:
The economic profit from the bookstore is $4,500.
Explanation:
An assistant professor of economics is earning a salary of $75,000 per year.
She decides to quit her job, sells bonds worth $110,000 that had been earning 5 percent per year, and uses the funds to open a bookstore.
She earns an accounting profit of $85,000 at the end year.
The accounting profit involves only the explicit cost of production. It does not consider the implicit cost. The implicit cost or opportunity is considered in calculating economic profits.
Implicit costs involved
= $75,000 + 5% of $110,000
= $75,000 + $5,500
= $80,500
Economic profits
= Accounting profits - Implicit costs
= $85,000 - $80,500
= $4,500
