Gomez Runs A Small Pottery Firm

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Gomez Runs A Small Pottery Firm

. He hires one helper at $12,000 per year, pays annual rent of $5000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3000 per year. Total annual revenue from pottery sales is $72,000. Calculate the accounting profit and the economic profit for Gomez's pottery firm.
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¥ Accounting Profit = $35,000 ($72,000 revenue - $37,000 in explicit costs) ¥ Economic Profit = $13,000 ($72,000 - $37,000 - $22,000 of implicit costs)
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