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ECN 130 Implicit Costs versus Explicit Costs and Accounting Profits versus Economic Profits Problem (EXTRA CREDIT) Sara was an accountant making $68,000/year before she decided
ECN 130 Implicit Costs versus Explicit Costs and Accounting Profits versus Economic Profits Problem (EXTRA CREDIT) Sara was an accountant making $68,000/year before she decided to open her own business, a bicycle shop. To start her business, Sara withdrew $90,000 from her investment portfolio, which earned a 3% rate of interest annually, and she borrowed an additional $100,000 from a bank. This loan has a 5% annual interest rate. Last year Sara paid $36,000 for her bike inventory, $11,000 for equipment and supplies, and $45,000 in wages. Her total revenue for the year was $190,000. a. What are Sara's explicit costs and implicit costs (show all work/details)? b. What is the accounting profit that Sara earned (show all work/details)? c. What is Sara's economic profit (show all work/details)? d. Should Sara continue to operate her bike shop or go back to being an accountant? Why
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