Suppose That You Open Your Own Business and Earn an Accounting

question 89

Multiple Choice

Suppose that you open your own business and earn an accounting profit of $30,000 per year. When you started your business, you left a job that paid you a $25,000 salary annually. Also, suppose that you invested $70,000 of your own funds to start up your business. If the normal rate of return on capital is 5 percent, your economic profit is

• A) $5,000.
• B) -$1,500.
• C) $1,500.
• D) -$5,000.

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Definitions:

Effective Price

The actual price that is paid for a product or service after accounting for discounts, subsidies, or taxes.

Effective Price

The final price after accounting for subsidies, taxes, or other incentives, effectively what the consumer pays or receives.

Demand Curve

A visual depiction highlighting how the price of an item or service influences the quantity of that item or service that people are willing to purchase over a designated period.

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded for a certain period of time.