Question

Scott used $4,000,000 from his savings account that paid an annual interest of 5% to purchase a hardware store. After one year, Scott sold the business for $4,100,000. His accounting profits is:

Answer 1

$100,000

Step-by-step explanation:

Accounting profit = Revenue - Explicit Cost

$4,100,000 - $4,000,000 = $100,000

Accounting profit does not taken into account opportunity cost or implicit cost. The implicit cost here is the amount of interest forgone by starting the store

This interest rate would have been earned if he left the money in his account