Accounting Profit vs. Economic Profit

Jim is an excellent oil painter. At the start of 2019, he quit his job as a factory worker and fulfilled a lifelong dream: to pursue a career as an artist, working for himself.

Jim was fortunate to earn revenue from different sources. During the year, Jim sold $50,000 worth of paintings. Several customers also approached him for art lessons; he earned $14,000 giving lessons.

He had numerous expenses during the year. To sell his paintings, he set up a booth at a local shopping mall andpaid $5,000 rent for the space. Additionally, he paid $1,500 for advertising, and another $3,000 to a part-time employee who manned the booth when he was not there.Supplies used during the year, along with other operating expenses, totaled $9,000.

In order to start his business, Jim gave up a salary of $40,000. Jim also used some of his bank savings, which forced him to give up the $300 per year he was earning in interest.

a. Calculate Jim's accounting profit (or loss) for 2019

b. Calculate Jim's economic profit (or loss) for 2019