Last year the accounting ledger for an owner of a small drugstore showed the following information about her annual receipts and expenditures. She lives in a tax-free country (so don't worry about taxes).
Revenues ......................................................... $1,000,000
Wages paid to hired labor (other than herself) .............. $300,000
Utilities (fuel, telephone, water) .............................. $ 20,000
Purchases of drugs and other supplies for the store ........ $500,000
Wages paid to herself ............................................ $100,000
She pays a competitive wage rate to her workers, and the utilities and drugs and other supplies are all obtained at market prices. She already owns the building, so she has no cash outlay for its use. If she were to close the business, she could avoid all of her expenses, and, of course, would have no revenue. However, she could rent out her building for $200,000. She could also work elsewhere herself. Her two employment alternatives include working at another drugstore, earning wages of $100,000, or working as a freelance consultant, earning $80,000. Determine her accounting profit and her economic profit if she stays in the drug store business. If the two are different, explain the difference between the two values you have calculated.