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As part of an estate settlement mary received $1 million. she decided to use the money to purchase a small business in anywhere, usa. her business operates in a perfectly competitive industry. if mary would have invested the $1 million in a risk-free bond fund she could have earned $100,000 each year. she also quit her job with lucky.com inc. to devote all of her time to her new business. her salary at lucky.com inc. was $75,000 per year. how large would mary's accounting profits need to be to allow her to attain zero economic profit

Respuesta :

W0lf93
Zero economic profit, in simple terms means break even point. It is a situation or point where total revenue of a company must be equal to total cost. This can be represented as:  
Total revenue-Total cost = 0 
 In this case, Mary's accounting profits need to be $175,000 so that she can attain zero economic profit. 
 Explanation: Investment made to business = $1 million which if Mary would have invested in risk-free bond, then she would have earned $100,000 per year. So, $100,000 is a cost. 
 Also, she left job(to devote time to business) from which she was earning $75,000 per year as salary. But as she left the job, this amount is also gone.
So, this is also a cost for her. 
 Now,
 Total cost = $100,000 + $75,000 = $175,000 
 To attain zero economic profit Mary' accounting profit should be $175,000.

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