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:

Minimum Wage

The lowest legal wage that can be paid to most workers, intended to protect workers from unfairly low pay.

CPI

The Consumer Price Index is a gauge that assesses the combined average cost of a variety of essential consumer items and services like healthcare, food, and transport, factoring in their weighted value.

Producer Price Index

Measure of the aggregate price level for intermediate products and wholesale goods.

Real Price

The price of a good or service after adjusting for inflation, reflecting its purchasing power over time.