Question

Jaynet spends \(30,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm-one offer was for \)110,000 per year, and the other was for \(80,000. However, she turned both jobs down to continue a painting carrier. If Jaynet sells 25 paintings per year at the price of \)8,000 each

1. What are her accounting profits?

2. What are her economic profits?

Short answer

1. Jaynet’s accounting profit is $\$170,000$.

2. Jaynet’s economic profit is $60,000.

Step-by-step solution

(a) Finding accounting profits.

Accounting profit is given by: $AP=TR-EC$

Where AP is accounting profit, $TR$is total revenue an $EC$ is explicit cost.

The total revenue is given as:

As Jaynet sells $25$paintings at a price $8000 each , we substitute $P=\$8000$and $Q=25$in the equation,

Now we substitute $TR=200,000$into the equation for the accounting profit:

The annual cost of the painting is $\$30,000$per year, therefore, we substitute $EC=\$30,000$into the equation:

$$\begin{gathered} AP=\$200,000-\$30,000 \\ =\$170,000 \end{gathered}$$

Therefore, Jaynet’s accounting profit is $170,000.

(b) Finding her economic profits.

The economic profits are given by:

$EP=TR-EC-IC$

Where EP is economic profits, TR is the total revenue, EC is explicit cost and IC is implicit cost.

We substitute $TR=200,000,EC=30,000,IC=110,000$into the equation:

Therefore, Jaynet’s economic profit is $\mathbf{\$}\mathbf{60}\mathbf{,}\mathbf{000}$.