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:

Income Effect

The alteration in a person's or economic system's earnings and the effect of this alteration on the demand for a particular product or service.

Wage Decrease

A reduction in the hourly or salaried compensation paid to workers.

Utility Maximizing

The economic principle that individuals and firms strive to achieve the highest satisfaction or benefit from their resources and choices.

Industry Demand Curve

A graphical representation showing the quantity of a product that consumers in an industry are willing and able to purchase at each price over a period of time.