1 The Midnight Hour A Local Nightclub Earned 100 000 In Accounting Profit Last Year 1040006

1)The Midnight hour, a localnightclub, earned $100,000 inaccounting profit last year. Thisyear the owner, who had invested $ 1million in the club, decided toclose the club. What can you sayabout economic profit (and the rateof return)in the nightclub business?ANSWER:Economic Profit = TR(total revenue)-TC(total economic cost)EP = $100,000 – $1,000,000EP = -$900,000Since EP is a negative number thefirm should shut down, the output isnot positive, therefore the companyoperates at a loss, the managerneeds to determine how long theywant to continue with this lossprocess.Does this sound like the correctanswer?Thanks,EY

 

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