Barney decides to quit his job as a corporate accountant, which pays $10,000 a month, and goes into business for himself as a certified public accountant. He runs his business from his converted garage apartment, which he could rent out for $300 a month if he wasn’t using it as a home office. He must purchase office supplies worth $75 a month, and his monthly electricity bill has increased by $50 now that he is working out of his home office. After six months of working from home, Barney has earned an average of $12,000 per month. a. What are Barney's average monthly accounting profits?
b. What are Barney's average monthly economic profits?

Explanation:

Barney's revenue = $ 12000

explicit costs = $ 75 + $ 50 = $ 125

a) Barney's accounting profit = total revenue - total explicit cost = $ 12000 - $125 = $ 11875

b) Barney's economic cost = total revenue - ( explicit cost + implicit cost )

where ( explicit cost + implicit cost )  = $ 10000 + $ 300 + $ 75 + $ 50 = $12000 - ( $ 10000 + $ 300 + $ 75 + $ 50) = $ 1575

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