Suppose Joe Starts His Own Business

question 16

Multiple Choice

Suppose Joe starts his own business. In the first year the business earns $100,000 in revenue and incurs $85,000 in explicit costs. In addition, Joe has a standing offer to come work for his brother for $40,000 per year. Joe's accounting profit is _________ and Joe's economic profit is __________.

• A)-$25,000 and $15,000
• B)$15,000 and $65,000
• C)$15,000 and $60,000
• D)$15,000 and -$25,000

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Definitions:

FICA-OASDI

Tax contributions made by both employees and employers to fund the Social Security program, covering retirement, disability, and survivorship benefits under the Federal Insurance Contributions Act.

FICA Tax Rate

The combined rate for Social Security and Medicare taxes that employers and employees must pay on wages.

OASDI

Old-Age, Survivors, and Disability Insurance, a comprehensive federal benefits program that includes retirement, disability, and survivors benefits.

State Income Tax

A tax levied by a state on the income of its residents and businesses operating within its jurisdiction.