1) Fred currently works for a corporate law firm and earns an annual salary of $125,000. He is

considering opening his own legal practice, where he expects to earn $200,000 per year once he gets

established. To run his own firm, he would need an office and a law clerk. He has found the perfect

office, which rents for $50,000 per year. A law clerk could be hired for $35,000 per year. If these figures

are accurate, would Fred's legal practice be profitable?

2)A firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000 on capital and

$200,000 on materials. The firm's factory sits on land owned by the firm that could be rented out for

$30,000 per year. What was the firm's economic and accounting profits last year?

3)In question 2 calculate the firm's accounting and economic profits, if the firm decided to get a bank

loan with 2% interest rate to cover all the firm's expenses.

4) In question 2 calculate the firm's accounting and economic profits, if the firm's owners paid all firm's

expenses from their personal saving account with 5% APR.