Kieran owns and operates his own bike shop. In the past week, a competitor offered to buy kieran’s bike shop for $100,000 and hire kieran for $50,000 per year. Assume the annual interest rate is 6 percent, and kieran’s accounting profit from his bike shop is $60,000. Kieran’s economic profit is?.

Profit, in business terms, the excess of total revenue over total cost over a specific time period. Profit in economics is defined as the excess of capital, land, and labor returns (interest, rent, and wages).

Economic profit is important because it aids in determining a company's profitability and financial performance.

Given this,

Total opportunity cost equals salary plus interest foregone, or $50,000 plus 6% of $100,000.

= 50,000 + 6000 = 56,000.

60,000 in total revenue received

Remember that

Revenue - (implicit + explicit cost) = economic profits

In addition to that

56,000 is the implicit cost multiplied by the opportunity cost.

Explicit price = 0

Thus

60000 - 56000 = Economic profit

= $4000.

Economic profit of Kieran is $4000.

To learn more about economic profit refer to :

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