Question

After deducting all variable costs, Jordan makes $150 selling wooden birdhouses that he built. If Jordan took off a day of work at a carwash where he would have earned $80 to attend the trade fair where he sold the birdhouses, which of the following statements is true? (5 points)

Jordan has an accounting profit of $70.

Jordan has an economic profit of $70.

Jordan has an economic profit of $120.

Jordan has an accounting profit of $80.

Jordan has an economic profit of −$80

Answer 1

Jordan has an economic profit of $70 after accounting for the opportunity cost of missing out on his carwash job to attend the trade fair.

Step-by-step explanation:

After deducting all variable costs, Jordan makes $150 from the sale of his wooden birdhouses. However, he missed out on earning $80 at his carwash job to attend the trade fair. Accounting profit simply deducts explicit costs from total revenue, not considering the opportunity cost of alternative activities. In contrast, economic profit takes into account both explicit and implicit costs, including the cost of opportunities forgone such as the carwash job.

Since Jordan made $150 from selling birdhouses, to calculate economic profit, one must subtract the opportunity cost of earning $80 at the carwash, leaving us with an economic profit of $150 - $80 = $70. Therefore, the correct statement is that Jordan has an economic profit of $70.

Answer 2

Jordan's accounting profit is $150, as that is the amount he earned from selling birdhouses. However, when considering the opportunity cost of $80 for not working at the carwash, Jordan's economic profit is actually $70.

Step-by-step explanation:

The question revolves around the calculations of accounting profit and economic profit. Accounting profit simply refers to the total revenues minus explicit costs. In Jordan's case, he made $150 from selling birdhouses, and there's no mention of explicit costs, so we would assume his accounting profit is $150. However, when calculating economic profit, we must consider both explicit and implicit costs. The implicit cost here is the opportunity cost of not working at the carwash, which is $80. Therefore, to calculate Jordan's economic profit, we subtract this implicit cost (opportunity cost) from his accounting profit ($150 - $80).

Jordan's economic profit is $70 ($150 - $80), while the accounting profit remains at $150. Thus, it's true that 'Jordan has an accounting profit of $150' (this option is not available among the answers) and 'Jordan has an economic profit of $70'.