For those who good at Microeconomic or figuring out economic profit?

Question

Not sure how to tackle this problem, concerning investment. Ok, here's the problem.

Problem: Mary left her teaching job, which paid $20,000 per year, and invested $20,000 of her retirement fund (which was earning 10% interest) in a new real estate business. Her accountant predicted $50,000 revenue for the first year. Her husband, an economist, forecast her economic profit to be...
a) $10,000
b) $22,000
c) $28,000
d) $50,000

Here's how I thought, I take $20,000 and multiplied by 10 percent and got $2,000. I did $20,000 plus $2,000 and got $22,000. But I have no clue what to do with $50,000 revenue. Do I just do $50,000 minus $22,000 and get $28,000? Or that's not right? Revenue count as accounting profit, right?

Because I look at the book and it said 
economic profit equal accounting profit minus opportunity cost.

? · Accepted Answer

Well, actually, go from the definition (accounting profit minus opportunity cost) and then plug in the relevant numbers:

Accounting Profit = $50,000
Opportunity Cost = $22,000 (It looks to me like you calculated that correctly)

$50,000-$22,000 = $28,000

So, I'd answer C, for the above reason.

Lo · Answer

Yeah, you did it right. Her total opportunity cost would be $22,000 because she no longer has the benefit of the $20,000 salary or the 10% earnings in her retirement account which you calculated correctly at $2,000. So yes you got it :0)

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For those who good at Microeconomic or figuring out economic profit?

2 Answers