Suppose that you open your own business and earn an accounting profit of $35,000 per year. When you started your business, you left a job that paid you a $30,000 salary annually. Also, suppose that you invested $70,000 of your own funds to start up your business. If the normal rate of return on capital is 10 percent, your economic profit is

$-2000

Explanation:

Economic profit = accounting profit - opportunity cost

Opportunity cost is the cost of the next best option forgone when one alternative is chosen over other alternatives.

if i hadn't quit my job, i would be earning $30,000. so, $30,000 is one of my opportunity costs.

also, if i hadn't started my business, i would be earning 0.1 x $70,000 = $7,000 on my capital. this is my second opportunity cost.

total opportunity cost = $7,000 + $30,000 = $37,000

economic profit = $35,000 - $37,000 = $-2000

since the options are not listed, when you are working on your budget you should also add water, tv, internet, miscellaneous and your 'fun' money for in your budget. when budgeting, you need to allow for fun money, and mis/accidental money so that you stick to the budget and not go crazy because you feel strapped to the budget.