Business I / Opportunity Cost
Practice question · Estimate

An entrepreneur quits a 40,000€/year job and pays 25,000€/year in business expenses. The business brings in 70,000€ of revenue. Set the slider to her economic profit in € (accounting profit minus forgone salary).

Estimate on a scale from 0€ (0) to 30,000€ (30000).

Hints
  1. Accounting profit: 70,00025,00070{,}000 - 25{,}000.
  2. Now subtract the salary she gave up.
Show the answer

5000 (answers within ±1000 count)

Why

Accounting profit is 45,000€, but the venture’s true margin over her best alternative is 45,00040,000=5,00045{,}000 - 40{,}000 = 5{,}000€. Economic profit asks not "did I make money?" but "did I beat the road not taken?"

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