Sandra lives in Melbourne and runs a business that sells guitars. In an average year, she receives $2.6 millionfrom sales of guitars. Of this sales revenue, she must pay the manufacturer a wholesale cost of $1,400,000. She also pays wages and utility bills totalling $1,100,000. If she does not operate this guitar business, she can work in an accounting firm and receive an annual salary of $70,000. She owns her showroom. If she chooses to rent it out, she will receive $50,000 in rent per year. Assume that the value of this showroom does not depreciate during the year. No other costs are incurred in running this guitar business. What is Sandra’s accounting profit (used for tax purposes)? What is her economic profit?
Sandra lives in Melbourne and runs a business that sells guitars. In an average year, she receives $2.6 millionfrom sales of guitars. Of this sales revenue, she must pay the manufacturer a wholesale cost of $1,400,000. She also pays wages and utility bills totalling $1,100,000. If she does not operate this guitar business, she can work in an accounting firm and receive an annual salary of $70,000. She owns her showroom. If she chooses to rent it out, she will receive $50,000 in rent per year. Assume that the value of this showroom does not depreciate during the year. No other costs are incurred in running this guitar business. What is Sandra’s accounting profit (used for tax purposes)? What is her economic profit?
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