Hiro owns and operates a small business that provides economic consulting services. During the year he spends $55,000
on travel to clients and other expenses, and the computer that
he owns depreciates by $2,000. If he didn’t use the computer,
he could sell it and earn yearly interest of $100 on the money
created through this sale. Hiro’s total revenue for the year is
$100,000. Instead of working as a consultant for the year, he
could teach economics at a small local college and make a
salary of $50,000.
a. What is Hiro’s accounting profit?
b. What is Hiro’s economic profit?
c. Should Hiro continue working as a consultant, or should
he teach economics instead?